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Creditors want your money, or your home
A growing number of banks are taking customers to court to secure their debts against their property
James Charles
Banks are forcing an increasing number of homeowners to secure debts on personal loans and credit cards against their properties.
Figures from HM Courts Service show that there has been a sevenfold increase in the number of court orders to secure personal debt against property in the past six years. These have included applications from mainstream lenders such as Egg, Nationwide and NatWest.
The Courts Service received a total of 92,933 applications in 2006, compared with only 16,014 in 2000. In 2006 the courts approved 72 per cent of applications from lenders to secure customers' debts against their homes, up from 60 per cent in 2000.
Frances Walker, of the Consumer Credit Counselling Service (CCCS), says that the practice is growing among large lenders who are nervous about the level of unsecured personal debt on their books and want to reduce their risk profiles. She says: “Lenders like their money to be secured because it is safer, but they are effectively getting the higher interest rates of an unsecured loan, with the guarantees of secured lending.”
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Even borrowers who have missed only one payment on a loan or credit card could be at risk. Debt advice charities are reporting an increase in the number of calls they receive from worried borrowers who have been sent charging orders or letters threatening them with action. The National Debt Helpline says that calls about charging orders accounted for about a tenth of all calls made to the charity last year, compared with 7 per cent of calls in 2006.
Solicitors are also reporting a surge in cases. One large nationwide law firm, which asked not to be named, revealed to The Times that it had applied for double the charging orders for clients last year as it did in 2006, a jump from 3,000 to 6,521. In the first two months of this year the firm has applied for 1,612 orders for clients, including high street banks.
Securing debt against a customer's property is usually the last resort for lenders. In extreme cases, lenders wanting to recover debts will move from a charging order to force the sale of a borrower's property. In most cases, debtors must simply repay the debt when their property is sold at a later date.
Michael Green, a partner at Weightmans, a firm of solicitors that specialises in debt recovery, says that, increasingly, lenders are using orders after a customer has defaulted on a payment. “If people default on credit card payments or loans, then banks want more security,” he says. “Lending institutions are more twitchy in the current market.”
Lucy Masters, of the Birmingham Law Centre, believes that the huge increase in the number of charging orders is a result of an aggressive new policy by creditors to pursue debts through the courts. She says: “The whole point of unsecured debt is that it is lent at a higher rate of interest because there is greater risk to the bank. But it turns out that is not the case, because it will be secured against your property anyway.”
Borrowers can be threatened with a charging order within months of defaulting on a repayment. A creditor, such as a bank, building society or mobile phone company, will apply for a default order, followed by a county court judgment (CCJ). The court will request that debts are repaid either immediately or over a fixed period. Failure to make these payments can result in a charging order. However, creditors are pushing courts to request that debts are repaid immediately and are then applying for a charging order to secure debts against borrowers' homes when they cannot pay it all back at once.
Ms Masters adds: “Historically, a charging order should be the last resort for creditors who have exhausted all other means of collecting their debts. Now creditors are applying for charging orders at the first opportunity and judges seem to be waving them through.”
Zoe Stevens, of Nationwide, insists that charging orders are the very last resort for the lender. She says: “Our customers should talk to us if they get into difficulty because there is a lot that we can do to help them to make their repayments. We will use charging orders in some cases. Often the threat of an order can excite payment. But it is certainly not the society's policy to push for an order of sale. We are happy to wait until the property is sold before we collect money due to us once a charging order is in place.”
James Ketching, of the CCCS, says: “Certain collections departments will use CCJs and charging orders more than others. We are in a time of credit difficulty and creditors might now be thinking about using the court process sooner to get their money back.”
The advice from charities is that anyone forced into a situation where a charging order could result is to seek free advice from charities such as Citizens Advice, the CCCS or the National Debt Helpline.
Mr Ketching adds: “Creditors are often more willing work to work with borrowers to restructure their debt once an organisation such as Citizens Advice or the National Debt Helpline is involved.
“We encourage clients to seek professional advice from a free-of-charge provider, not necessarily a solicitor. They can advise people on the completion of the forms relating to charging orders, the processes involved and what to expect during and after the process.”
CASE STUDY: House equity will be consumed by unpaid loans
A few months after Jillian Best separated from her violent and abusive husband in 2005 she was shocked to find creditors demanding payment for a £6,000 personal loan that her husband had taken out from the Funding Corporation.
Ms Best, left, says: “I never saw any of the money from the loan. but it was considered a joint loan because I signed as a guarantor.”
The marriage breakdown left Ms Best in a fragile condition and she suffered bouts of severe depression, which meant that she was unable to work. After a year her employer terminated her contract because of ill-health and she quickly struggled to pay for a personal loan and the mortgage on her £135,000 home.
The mother of five made the mortgage repayments her top priority and missed payments on her £20,000 NatWest loan. “I tried to renegotiate my mortgage deal with Abbey but it wanted a signature from my husband. I tried to explain that it was an abusive relationship and I no longer had contact with him, but it was not willing to lower my repayments. I didn't know what to do, but I defaulted with the NatWest loan payments.”
Last week NatWest filed a charging order application on her home for the outstanding balance of the loan. Although a judge recently rejected a request for a charging order from the Funding Corporation, the company has warned her that it is pursuing the debt and still has an “interest” in her property.
Together, Ms Best's debts mean that she will keep little or no equity from the sale of her home, when she does put it on the market. “I have been working for such a long time to support my children and I am going to have nothing left to show for it when I sell the house,” she says.
Creditors want your money, or your home
A growing number of banks are taking customers to court to secure their debts against their property
James Charles
Banks are forcing an increasing number of homeowners to secure debts on personal loans and credit cards against their properties.
Figures from HM Courts Service show that there has been a sevenfold increase in the number of court orders to secure personal debt against property in the past six years. These have included applications from mainstream lenders such as Egg, Nationwide and NatWest.
The Courts Service received a total of 92,933 applications in 2006, compared with only 16,014 in 2000. In 2006 the courts approved 72 per cent of applications from lenders to secure customers' debts against their homes, up from 60 per cent in 2000.
Frances Walker, of the Consumer Credit Counselling Service (CCCS), says that the practice is growing among large lenders who are nervous about the level of unsecured personal debt on their books and want to reduce their risk profiles. She says: “Lenders like their money to be secured because it is safer, but they are effectively getting the higher interest rates of an unsecured loan, with the guarantees of secured lending.”
Related Links
Even borrowers who have missed only one payment on a loan or credit card could be at risk. Debt advice charities are reporting an increase in the number of calls they receive from worried borrowers who have been sent charging orders or letters threatening them with action. The National Debt Helpline says that calls about charging orders accounted for about a tenth of all calls made to the charity last year, compared with 7 per cent of calls in 2006.
Solicitors are also reporting a surge in cases. One large nationwide law firm, which asked not to be named, revealed to The Times that it had applied for double the charging orders for clients last year as it did in 2006, a jump from 3,000 to 6,521. In the first two months of this year the firm has applied for 1,612 orders for clients, including high street banks.
Securing debt against a customer's property is usually the last resort for lenders. In extreme cases, lenders wanting to recover debts will move from a charging order to force the sale of a borrower's property. In most cases, debtors must simply repay the debt when their property is sold at a later date.
Michael Green, a partner at Weightmans, a firm of solicitors that specialises in debt recovery, says that, increasingly, lenders are using orders after a customer has defaulted on a payment. “If people default on credit card payments or loans, then banks want more security,” he says. “Lending institutions are more twitchy in the current market.”
Lucy Masters, of the Birmingham Law Centre, believes that the huge increase in the number of charging orders is a result of an aggressive new policy by creditors to pursue debts through the courts. She says: “The whole point of unsecured debt is that it is lent at a higher rate of interest because there is greater risk to the bank. But it turns out that is not the case, because it will be secured against your property anyway.”
Borrowers can be threatened with a charging order within months of defaulting on a repayment. A creditor, such as a bank, building society or mobile phone company, will apply for a default order, followed by a county court judgment (CCJ). The court will request that debts are repaid either immediately or over a fixed period. Failure to make these payments can result in a charging order. However, creditors are pushing courts to request that debts are repaid immediately and are then applying for a charging order to secure debts against borrowers' homes when they cannot pay it all back at once.
Ms Masters adds: “Historically, a charging order should be the last resort for creditors who have exhausted all other means of collecting their debts. Now creditors are applying for charging orders at the first opportunity and judges seem to be waving them through.”
Zoe Stevens, of Nationwide, insists that charging orders are the very last resort for the lender. She says: “Our customers should talk to us if they get into difficulty because there is a lot that we can do to help them to make their repayments. We will use charging orders in some cases. Often the threat of an order can excite payment. But it is certainly not the society's policy to push for an order of sale. We are happy to wait until the property is sold before we collect money due to us once a charging order is in place.”
James Ketching, of the CCCS, says: “Certain collections departments will use CCJs and charging orders more than others. We are in a time of credit difficulty and creditors might now be thinking about using the court process sooner to get their money back.”
The advice from charities is that anyone forced into a situation where a charging order could result is to seek free advice from charities such as Citizens Advice, the CCCS or the National Debt Helpline.
Mr Ketching adds: “Creditors are often more willing work to work with borrowers to restructure their debt once an organisation such as Citizens Advice or the National Debt Helpline is involved.
“We encourage clients to seek professional advice from a free-of-charge provider, not necessarily a solicitor. They can advise people on the completion of the forms relating to charging orders, the processes involved and what to expect during and after the process.”
CASE STUDY: House equity will be consumed by unpaid loans
A few months after Jillian Best separated from her violent and abusive husband in 2005 she was shocked to find creditors demanding payment for a £6,000 personal loan that her husband had taken out from the Funding Corporation.
Ms Best, left, says: “I never saw any of the money from the loan. but it was considered a joint loan because I signed as a guarantor.”
The marriage breakdown left Ms Best in a fragile condition and she suffered bouts of severe depression, which meant that she was unable to work. After a year her employer terminated her contract because of ill-health and she quickly struggled to pay for a personal loan and the mortgage on her £135,000 home.
The mother of five made the mortgage repayments her top priority and missed payments on her £20,000 NatWest loan. “I tried to renegotiate my mortgage deal with Abbey but it wanted a signature from my husband. I tried to explain that it was an abusive relationship and I no longer had contact with him, but it was not willing to lower my repayments. I didn't know what to do, but I defaulted with the NatWest loan payments.”
Last week NatWest filed a charging order application on her home for the outstanding balance of the loan. Although a judge recently rejected a request for a charging order from the Funding Corporation, the company has warned her that it is pursuing the debt and still has an “interest” in her property.
Together, Ms Best's debts mean that she will keep little or no equity from the sale of her home, when she does put it on the market. “I have been working for such a long time to support my children and I am going to have nothing left to show for it when I sell the house,” she says.
