Loans to Prevent Repossessions and Evictions

MIDDLESBROUGH COUNCIL

EXECUTIVE REPORT

Loans to prevent repossessions and evictions

Executive Member for Regeneration and Economic Development, Councillor David Budd

Kevin Parkes, Director of Regeneration

10 February 2010

PURPOSE OF THE REPORT

To seek approval to proceed with a loans scheme to prevent repossessions and evictions. Funding has been received from Communities and Local Government (CLG) for the purpose of issuing loans to households is financial difficulties and struggling to pay their mortgage or rent as a result of the economic downturn.

SUMMARY OF RECOMMENDATIONS

That the Executive:

a)approves the process for administering the loans, as set out in Appendix 1, through the Voluntary Sector organisation, Five Lamps;

b)agrees to delegated authority for Erimus Housing, which delivers the Homelessness and Housing Advice Service on behalf of the Council, to approve allocation of the loans awards prior to Five Lamps issuing the loan; and,

c)approves any under-spend in 2009/10 to be carried forward to future financial years to provide a rolling fund.

IF THIS IS A KEY DECISION WHICH KEY DECISION TEST APPLIES?

It is over the financial threshold (£75,000)
It has a significant impact on 2 or more wards
Non Key / 

DECISION IMPLEMENTATION DEADLINE

For the purposes of the scrutiny call in procedure this report is

Non-urgent / 
Urgent report

If urgent please give full reasons

BACKGROUND AND EXTERNAL CONSULTATION

Background

In May 2009, the Chancellor announced in the Budget that £20 million would be made available to enable local authorities to extend small loans to families at risk of homelessness through repossession or eviction.

Subsequently CLG informed all local authorities that funding for this purpose was being issued, in addition to the Homelessness Grant. Middlesbrough Council has been allocated £47,500, which is a one off payment in 2009/10. However, any under-spend and repayment of loans can be carried forward to future financial years to provide a rolling fund. CLG has asked for monthly returns on the number of loans issued.

With the impacts of the recession and redundancies in the area potentially increasing in the new year with the closure of Corus, it is anticipated that this loan fund will be a useful tool to prevent people losing their homes.

Since the introduction of the Homelessness Act 2002, local authorities have been encouraged to prevent as well as tackle homelessness. Middlesbrough saw a rise in homelessness acceptances as a result of mortgage arrears from 0 in 2007/08 to 7 in 2008/09. So far this year a total of 41 owner-occupiers in mortgage difficulties have approached the Council’s Housing Advice service, delivered by Erimus Housing for advice and assistance. This loan fund will provide a further homelessness prevention tool to enable to Council via Erimus Homechoice to assist households further.

Principles of the loan fund

The funding is intended to assist homeowners struggling with their mortgage costs, as well as tenants in the social or private rented sectors who, through no fault of their own, are struggling with their rental payments in the current economic climate and may face eviction.

CLG guidance states that it anticipates the majority of loans, available at 0% interest, will range from £1,000 to £3,000 per household.

The loans should only be issued to households at risk of becoming homeless through repossession or eviction. The loan is not intended to be used to fully clear rent or mortgage arrears, it should be made to recover the position, where all other options have failed. Negotiations will take place between Erimus Housing or a Money Advice Agency e.g. the Council’s Money Advice service, or Citizens Advice Bureau, and the mortgage lender or landlord to arrange a payment plan to pay off any remaining arrears.

The following examples demonstrate what the loans may cover, as per CLG’s guidance:

a)to assist with Mortgage Rescue cases, where the household is in negative equity e.g. where a registered social landlord will purchase a property and rent it back to the homeowner on an affordable rent;

b)to reduce mortgage arrears to a manageable level, where lenders have exhausted all their possible options;

c)to reduce, or part settle, second charge actions where that charge had been taken out against the property for security;

d)to reduce the level of rent arrears for tenants in the private or social rented sectors, where their income is reduced due to the economic downturn, and there is no previous history of high rent arrears; and,

e)a loan or guarantee to the lender or landlord to pay part of the arrears for a household due to be imminently evicted or repossessed.

Administering the fund

Utilising the Housing Advice Service, currently provided by Erimus Housing, will mean the loans fund will add to the range of homelessness prevention tools currently available to clients. Erimus Housing is currently working in partnership with the Council’s Money Advice service and Citizens Advice Bureau to provide a holistic service for housing and debt advice. With experienced Money Advisors located in the Erimus Homechoice office, this ensures the client will receive prompt professional advice. A Homelessness Prevention Officer (HPO) will assist the client with advice and assistance on all the mortgage rescue options available to them. Where the HPO thinks a loan will be the best option, the client will be referred to a Money Advisor.

The Money Advisor will go through the household’s income and expenditure, identify the current debt, and whether the household is in financial difficulties, or whether it is simply choosing not to pay. A benefit check will also be carried out to maximise the household’s income. It will also advise how much loan is required to assist the client, and what the household will be able to afford to repay, this will affect the duration of the loan, it is anticipated the loans will be issued on a one to four year repayment basis.

Where a loan is a feasible option, the household needs to be referred to a licence holder under the Financial Services Regulations. Strategic Procurement has advised that a 10% management fee would be appropriate. This equates to £4,750 of the total fund. In accordance with Standing Orders one quote is required, however, to ensure best value for money three organisations were asked to make submissions. Five Lamps, one of the largest community-led social and economic regeneration businesses in the North East, based in Stockton, was considered to provide the best value for money, and holds the relevant licence.

Five Lamps will hold outreach sessions and would be able to meet a client in either Erimus’ offices or the Money Advice Agency, making it convenient for the client. The fee for administering the loans is a one-off payment which includes issuing the loans, contacting clients in case of default on repayments, and managing the budget on behalf of the Council.

Five Lamps takes a holistic approach and will offer advice and assistance on employment opportunities where the household has had a reduction of income due to redundancy, which is an important part of the service in the current economic climate.

Five Lamps will monitor the budget through their loan management system, and will provide a monthly report back to the Council to include the number of households assisted, the tenure of the household’s property, the amount of the loan issued, and also repayment/non-payment updates; a monitoring form has been developed for this purpose.

A procedure has been developed (Appendix 1), to clarify each organisation’s role and responsibility, and also to avoid any unnecessary duplication of work.

The scheme will be reviewed at 31 March 2011, to assess what funding remains, and whether the scheme will continue, based on advice from CLG. If funds remain, including income from repaid loans, will be recycled into the Homelessness Grant, to fund homelessness prevention initiatives.

Strategic Housing will liaise with Legal Services to develop a formal contract between the Council and Five Lamps.

EQUALITY IMPACT ASSESSMENT

An initial Equality Impact Assessment (EIA) has been completed and it has been found that no partial or full assessment is necessary, a copy of the EIA is attached at Appendix 2.

OPTION APPRAISAL/RISK ASSESSMENT

Option 1 – Erimus Housing to administer

Erimus Housing was approached to administer the loans fund as part of the Homelessness and Housing Advice Services delivered on behalf of the Council. This option was not feasible as Erimus Housing does not have the relevant licence required to issue loans, as per the Financial Services Authority.

Option 2 – Middlesbrough Council to administer

Middlesbrough Council currently issues loans for home improvements, and the possibility of the repossessions and eviction loans fund to be issued in the same way was explored. This option was also not feasible as the Council does not hold the relevant licence required to issue loans for the purpose of paying of debts, as this differs from home improvement loans.

The preferred option

Option 3 – To work with a voluntary sector partner organisation to administer

Five Lamps was approached as it currently issues loans to people in financial difficulties on behalf of the Department for Work and Pensions. Five Lamps also takes a holistic approach and will offer advice on assistance on employment opportunities where the household has had a reduction of income due to redundancy. The fee for administering the loans is £4,750 which includes issuing the loans, contacting clients in case of default on repayments, and managing the budget on behalf of the Council. Two other quotations were obtained from other organisations, but were not as competitive.

FINANCIAL, LEGAL AND WARD IMPLICATIONS

Financial - The Council has received an allocation of £47,500, of this £4,750 will be required for management fees. Any funds remaining including income from repaid loans, will be recycled into the Homelessness Grant, to fund homelessness prevention initiatives. Any under-spend in 2009/10 will be carried forward into the next financial year. However, this is subject to the Council’s overall year end financial position.

Ward Implications – There are no specific ward implications. The loans service will be available to homeowners and tenants across the whole of Middlesbrough.

Legal Implications – it is not a legal requirement for the Council to run the loans scheme.

RECOMMENDATIONS

That the Executive:

a)approves the process for administering the loans, as set out in Appendix 1, through the Voluntary Sector organisation, Five Lamps;

c)approves any under-spend in 2009/10 to be carried forward to future financial years to provide a rolling fund, subject to the Council’s overall year end financial position.

REASONS

Five Lamps has experience in administering a loans scheme, and offers the Council value for money option.

The loans scheme will prevent households from becoming homeless through mortgage repossession or eviction.

BACKGROUND PAPERS

No background papers were used in the preparation of this report.

AUTHOR: Sarah Brannen, Senior Housing Strategy Officer

TEL NO: 01642 729172

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