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New Clause 15

Banking Bill – in a Public Bill Committee at 11:45 am on 18th November 2008.

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Court’s discretion in mortgage possession proceedings brought by a bank

‘In the Housing Act 1980 (c. 51), after section 89 insert—

“89A Court’s discretion in mortgage possession proceedings brought by a bank

(1) This section applies where, in possession proceedings brought by a mortgagee under a mortgage agreement (whether or not regulated by any enactment)—

(a) it appears to the court that the property is occupied by a person or persons whose occupation derives from an interest or licence created by the mortgagor under that agreement (whether or not such interest or licence was created in breach of the terms of that agreement), and

(b) the mortgagee is a bank within the meaning of section 2 of the Banking Act 2008.

(2) Where subsection (1) applies, the court may postpone the date of possession, or stay or suspend execution of the order, for such period or periods as the court thinks just, not exceeding three months in total.

(3) On any such postponement, stay or suspension as is referred to in subsection (1), the court may, unless it considers that to do so would cause hardship to the occupier or would otherwise be unreasonable, impose such conditions as it thinks fit with regard to the payment by the occupier of sums for the use and occupation of the premises (not exceeding the amount of the rent or other contractual payment which the occupier was liable to pay under his agreement with the mortgagor).

(4) Rules of court shall provide for appropriate notices to be served on the residential occupier of any premises prior to the commencement and in the course of possession proceedings brought by a mortgagee of those premises; and shall provide for the occupier to be heard by the court, whether by being joined as a party to the proceedings or otherwise.

(5) In fixing the period of any such postponement, stay or suspension as is referred to in subsection (2) and in deciding whether to impose conditions under subsection (3), the court shall have regard to all the circumstances, including—

(a) the terms, and in particular the duration, of the agreement between the occupier and mortgagor;

(b) the interests of any children or other vulnerable members of the occupier’s household;

(c) the fact (if applicable) that the occupier’s agreement with the mortgagor has been terminated prematurely;

(d) the availability of suitable alternative accommodation;

(e) whether the tenancy or licence between the mortgagor and the occupier was created in breach of the terms of the mortgage agreement, and whether the occupier was aware that his occupation constituted such a breach;

(f) whether the mortgagee knew, or ought to have known, that the premises were to be let or licensed by the mortgagor, in the course of business or otherwise;

(g) any prejudice which would be caused to the mortgagee by the deferment of possession or execution; and

(h) any hardship which would be caused to the occupier by a decision not to defer possession or execution.

(6) For the avoidance of doubt, nothing in this section affects the right of a person whose interest in the property pre-dates, or otherwise ranks in preference to, the interests of the mortgagee.”’.—[Ms Keeble.]

Brought up, and read the First time.

Photo of Sally Keeble Sally Keeble Labour, Northampton North

I beg to move, That the clause be read a Second time.

Photo of Roger Gale Roger Gale Conservative, North Thanet

With this it will be convenient to discuss new clause 16—Mortgage possession proceedings brought by a bank—

‘At the beginning of Part 4 of the Administration of Justice Act 1970 insert—

“35A Mortgage possession proceedings

(1) Section 35B applies in the case of any mortgage possession proceedings brought by a bank (within the meaning of section 2 of the Banking Act 2008).

(2) Section 36 applies in the case of any other such proceedings.

35B Mortgage possession proceedings brought by a bank

(1) All mortgages securing a loan of money or other form of credit on residential premises shall be enforceable only upon the mortgagee obtaining an order of the court.

(2) A power of sale which becomes exercisable by a mortgagee of residential premises, whether under the mortgage agreement or by virtue of sections 101 to 103 of the Law of Property Act 1925, shall be exercised only following an order for possession granted by the court.

(3) Where a mortgagee under a mortgage of residential premises brings an action in which he claims possession, the court may exercise any of the powers in subsection (4) if it appears to the court that it is reasonable in all the circumstances to do so.

(4) In a possession claim of the kind specified in subsection (3) the court may, if it considers it just to do so—

(a) adjourn the proceedings;

(b) make the operation of any term of the order conditional on the doing of specified acts by any party to the proceedings;

(c) suspend the operation of any term of the order; or

(d) at any time before execution of a judgment or order, postpone the date of possession, or stay or suspend execution of the judgment or order, for such period or periods as the court thinks reasonable or until such time as the court subsequently directs.

(5) For the avoidance of doubt, the court’s powers under subsection (4) exist in relation to any mortgage or charge under which a loan of any kind is secured upon residential property, irrespective of the purpose for which the loan was taken out or of the relative priority of the loan or of regulation by any other enactment.

(6) On making an order under subsection (4), the court shall impose such conditions with regard to payment by the mortgagor of any sum secured by the mortgage or the remedying of any default as the court thinks fit.

(7) Notwithstanding the terms of any agreement, a mortgagee of residential premises shall be entitled to charge to the mortgagor the costs of and ancillary to proceedings for possession or for recovery of any sums due under the mortgage only if, and to the extent that, the court makes an order for costs in his favour.

(8) The remedy of foreclosure shall no longer apply to mortgages of residential premises.

(9) In this section “residential premises” mean any premises comprising or containing a dwelling.

(10) Nothing in this section affects the power of the court to make a time order or other orders under sections 129 to 140B of the Consumer Credit Act 1974 in relation to agreements regulated by that Act.”’.

Photo of Sally Keeble Sally Keeble Labour, Northampton North

New clause 15 deals in particular with the rights of tenants in properties that are then repossessed. The new clause ensures that they have some rights in the process, rather than, as sometimes happens, their being left completely unaware of what is happening, pretty much until the bailiff comes to evict them. I am particularly grateful to Shelter, which has repeatedly raised that concern on behalf of people it deals with.

The new clause gives discretion to the courts to delay repossession for up to 90 days, to look at the circumstances of children living in the property, and to consider the nature of the tenancy. It also gives tenants a right to be heard at the hearing—an important right, which they do not have now. The new clause also sets out in more detail the type of notice that tenants should be given and the frequency with which they should be informed of what is happening to their home. That is particularly important now, because one of the sectors affected by  the credit crunch is the buy-to-let market. A lot of private sector rented property in this country belongs to landlords who own just a few properties and live on the rental income. That sector is hard hit and its tenants are particularly vulnerable to action that landlords might take.

The new clause is particularly important now for a second reason. Often we think of private sector rented housing being entirely a private sector function, but increasingly that is not the case. Because of the shortage of social housing, a large number of what would normally be social tenants have been diverted into private sector rented property, through the options interview process, while still living on housing benefit. There are real concerns, therefore, about the level of resources available to some tenants in private sector rented properties and about their ability to move around and to find alternative housing.

I come across that problem repeatedly, as I am sure do a good number of other hon. Members. During advice surgeries, I have met people living in private sector rented properties whose landlords have defaulted on their mortgages. As a result, their properties have been repossessed and they have been ordered to leave at extremely short notice. The point of the new clause is not to prevent repossessions where people have defaulted, but to ensure that when it happens, it happens in an orderly fashion. The new clause would also ensure that, if a court orders a delay, it has the power to determine rental levels and to put in place arrangements for tenants to receive notice of what is happening and to put their case in court, for the needs of the household, especially children, to be considered and for the court to have some regard to other housing in the area.

I shall give an example of what can happen in the absence of an orderly wind-down. I was visited recently by a constituent of mine who had a tenancy in which the rent was inclusive of council tax. She was booted out at extremely short notice, but arrangements were not made for the proper winding down of the accounts and payments. One year later, after she had settled in to a new property, she was presented with a bailiffs’ bill for more than £1,000, which was the estimated cost of recovering one month’s council tax of £195. The landlord should have paid it, but had not. No process had been in place for sorting that out, so she was simply dumped with the bill. A process such as the one in the new clause would ensure that instead of just giving consideration to the owner of a property being repossessed, proper regard would also be given to those living in it. Proper arrangements should be in place to protect them from some of the worst excesses of the current system.

Photo of John Pugh John Pugh Shadow Minister (Treasury)

I speak to new clause 16, which stands in my name and that of my hon. Friend the Member for South-East Cornwall, but I shall also say something about new clause 15, which seems to be an attempt to impose sensible regulation on the timing and manner of mortgage repossession where tenants are concerned. It sets out some very legitimate social concerns that should be considered formally by the courts. I have just one concern about such an amendment, although to some extent the hon. Lady has responded to it already. We do not want to create a toolkit for delay, evasion or the  perpetuation of unsustainable situations by putting off the inevitable. In such circumstances, a complex series of relationships will have been entered into, and they should not be unpicked precipitously or without care and thought.

To some extent, the same applies to new clause 16. Proposed new section 35B(1) and (8)—in many ways the shortest and most comprehensible subsections of what is quite a long new clause—address the nub of the matter. The new clause has been developed over time. I am not saying that it is business in progress, but obviously it could stand to be revised in the light of any critique from the Minister. However, it addresses an important consideration: we all agree that repossessions by banks—this Bill deals only with repossessions by banks—should take place in a considered way and by application to courts. It is perfectly possible for that not to happen and for the banks simply to foreclose under common law, for people not to know their rights or to be advised on them inadequately, and for there to be no considered and careful court process. That can be unfortunate and lead to a bad outcome, particularly when we remember, or have it brought to our attention, that many mortgage repossessions are prompted by strained personal circumstances, such as divorce. That kind of thing does not happen often. Where such big and traumatic events do occur, when situations were entered into with care and consideration, the exit should equally be marked with care and consideration.

If there is the option of an exchange of letters and the banks using powers to foreclose on the deal, which is not illegitimate and is allowed at the moment, things may not turn out perfectly or as we would wish, and will not reflect the balance of interests between the parties adequately. I think that the measure has the support of Shelter; I stand to be corrected on that, but I am fairly confident that it does. It closes a loophole in British law, which most of us are not aware of in the first place. It would be better if it was not there.

Photo of David Gauke David Gauke Shadow Minister (Treasury) 12:00 pm, 18th November 2008

I am grateful to the hon. Members who proposed the new clauses; they have highlighted an issue of growing concern. We know that the Council of Mortgage Lenders has predicted 45,000 repossessions this year and there are concerns that the number might rise next year. There are worries that the balance between the rights of mortgagees and mortgagors is inappropriate, particularly regarding the important issue of repossessions occurring without a court order, which was raised by the hon. Member for Southport.

No doubt, the Minister will give us his assessment of whether the new clauses would achieve their objectives. Whether the Banking Bill is the appropriate vehicle for addressing these matters is, again, an issue for debate. The issues touched upon by the new clauses are important, and given the state of the economy and the likely level of repossessions over the months ahead, it is right that we have the opportunity to debate these matters at this stage. All serious politicians will give a great deal of thought to them in the months ahead.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

The Government welcome the opportunity to discuss the important issue of the protection of home owners in arrears and facing repossession proceedings.  We have acted on it in a number of areas in recent weeks and months. I stress that we want all borrowers to be treated fairly and, particularly during difficult times, we want to ensure that appropriate actions are taken.

The two new clauses both concern repossession hearings. New clause 15 concerns the treatment of tenants in mortgaged properties subject to repossession. It aims to protect tenants and licensees who do not have a right to remain when a lender takes possession. Those occupiers should be allowed adequate time to make alternative arrangements. The key provision of the new clause is that the court should have discretion to allow the occupier of such a property up to three months in total to make alternative arrangements, before the date set by the court for the possession order to take effect. The provision is supported by others for notices to be served before and during possession proceedings.

I understand that, in practice, the proposal may be little different from the present law, although it could help to clarify it. At present, an occupier should receive at least 14 days’ notice of the possession hearing and may apply to the court to be joined in the possession action. The courts already have the power to allow such occupiers a reasonable amount of time to move out if their circumstances justify it. That is achieved without the additional expense and trouble that would be caused by the proliferation of notices that appear to be suggested in the amendment.

We need to ensure that the interests of ordinary families caught up in other people’s repossessions are properly protected. The Civil Procedure Rule Committee, which is the statutory body responsible for the development of rules of court, will be considering what notice of a mortgagee’s possession proceedings should be given to occupiers. The committee is the appropriate forum in which to decide whether further procedural protections are necessary.

The new clause provides that the occupier can be required to pay the lender for the use of the property during the relevant period. That is only reasonable, and it is broadly similar to the way tenants would be treated under the current law. I recognise that there are issues raised by the new clause tabled by my hon. Friend the Member for Northampton, North and, as I indicated, we are actively considering them.

I turn to new clause 16. As I said at the outset, the Government wish to see all borrowers treated fairly, and a key element is that lenders treat repossession as a last resort. At present, lenders seeking to evict borrowers from residential property will normally go to court to get a possession order. In those cases the court has power to delay or prevent the making or operation of the possession order, where it appears that the borrower can pay off the arrears within a reasonable time, while not falling further behind with future payments. That limitation recognises that a mortgage is a debt and ultimately, if we are to ensure that there are lenders willing to provide funds to home owners and home buyers, the debt has to be repaid.

The new clause would remove the remedy of foreclosure from residential properties. I understand that the remedy is little used but we need to consider properly what the implications of closing it off would be, before deciding that it can be abolished. The new clause would also restrict the ability of lenders to recover the costs of  possession proceedings and proceedings to recover money, by making such recovery subject to the precondition of obtaining a court order.

I am sure that we have all received letters from constituents about excessive costs charged by mortgagees and added to the mortgage debt, so I understand the concern driving the new clause. However, if it is the intention that lenders may not recover their costs without a court order, we need to be careful that the provision does not increase those costs by requiring court action in every case. There is a danger of generating unnecessary litigation for the parties and the courts, which could feed through into higher borrowing costs to the detriment of borrowers generally.

We need to look at all the issues together. The new clauses address only the actions of banks, but clearly building societies and other lenders need to be considered. In relation to new clause 16, we also need to consider carefully how any restriction on the power of sale will interact with existing mortgages, where the power of sale forms part of the contractual rights of the lender. The Justice Secretary is actively considering whether further action should be taken in relation to repossession cases. We are committed to working with lenders, regulators and the judiciary to ensure that timely action is taken in response to problems.

The Government have already taken specific action. We have made clear our concern for families in financial difficulty and facing repossession. We are actively working with lenders, regulators and the judiciary to ensure that borrowers are treated fairly. In 2004 the Government extended the scope of Financial Services Authority regulation to cover mortgages. FSA regulation ensures that borrowers are afforded important protections and have appropriate means of redress. On 22 October the Master of the Rolls approved a new protocol for possession proceedings. It is intended to ensure that lenders and borrowers use every effort to ensure that there is a genuine attempt to find other solutions.

The protocol will come into force from tomorrow, and we will continue to provide advice and assistance through the courts and other agencies to individuals with mortgage payment problems. We will consider the policy issues underlying the amendments, and with that assurance I hope that my hon. Friend will withdraw the new clause.

Photo of Roger Gale Roger Gale Conservative, North Thanet

Dr. Pugh, do you want to respond?

Photo of John Pugh John Pugh Shadow Minister (Treasury)

I thank the Minister for his thorough and thoughtful response, which recognised the issue and dealt with it, but indicated some of the work that may need to be done in an amendment to address it satisfactorily. I shall read carefully what he said and consider the details, but I shall not press the new clause, which was a probing provision and has done exactly what it should do.

Photo of Sally Keeble Sally Keeble Labour, Northampton North

I very much welcome the commitment to consider the issues, and the concern about people who face repossession of their homes and tenants who are living in privately rented properties subject to repossession. However, the explanation that has been provided is wide of the reality facing many people. If a social tenant receives notice only 14 days before the hearing  that their landlord is being taken to court, and the next step is to be told that the bailiffs are coming round to evict them, it does not give them much opportunity to try to join in the proceedings or to tell the court what is happening. The court making the decision may not have a mechanism for the tenant even to be made aware of what is happening with the eviction, and might unwittingly make a vulnerable large family with a number of children homeless when there is not much other housing around.

I hope that the review will be careful, and that I and others with an interest can have input in some of the discussions so that we can decide what best practice should be. However, I completely recognise that this is probably not the time or place to press the new clause to a vote, so I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.