Mortgage trap that looms for right-to-buy homeowners

Survey reveals level of risk facing ex-tenants who purchase their council property. Jamie Elliott reports

People who buy their council property under right-to-buy schemes are far more likely than other homeowners to get into mortgage arrears and risk losing their homes.

A survey of almost 2,000 mortgage holders carried out by the campaign group Consumer Focus between March and May found that right-to-buy homeowners were twice as likely as other households to have had problems paying their mortgage. Nearly one in 10 who had bought their council home got into difficulty in the previous three months.

People who had taken out a mortgage on their council home were also 50% more likely to have other debts secured against it, leaving their property at greater risk of being repossessed.

The findings, given exclusively to The Observer, come as no surprise to Val Blood, of North Yorkshire Housing Advice Resource Project, and duty housing adviser at York county court.

"During the property boom, council tenants were encouraged to take out mortgages they simply couldn't afford," she says. "Companies leafleted whole estates and especially targeted tenants in rent arrears with the promise of paying off what they owed and allowing them to buy their home as well. But if you can't pay your rent, how can you pay a mortgage? Within a year many were facing repossession and often ended up homeless."

Council tenants who bought their homes have also been targeted by companies selling second mortgages.

"Because of the discounts councils offer, these people have equity in their homes as soon as they buy them," says Brian Coulson, housing lawyer at Bury Law Centre. "There has been a lot of hard sell on TV and cold-calling from lenders encouraging right-to-buy homeowners to 'release the equity in your home'. When you're struggling to make ends meet, these offers are hard to resist."

Investing for the future
Glen Mason, 54, felt he was investing in his future when he bought his Cheltenham council flat for £34,000 in 2006. "I thought buying the flat would make my retirement easier," he says.

However, store card and credit card debts soon started to build up, making it difficult for Mason to keep up his mortgage repayments. Barclaycard and some of his other lenders successfully applied for charging orders, securing the money they were owed against Mason's home. Then the recession cost him his agency cleaning job. "I started claiming jobseeker's allowance in January but couldn't get any help from the government with the mortgage repayments until April. By then it was too late."

Homeowners who claim jobseeker's allowance or income support have to wait 13 weeks before they are entitled to help with mortgage interest payments.

Last month a judge granted Mason's mortgage company a possession order, and gave him 28 days to vacate his home.

"I'm still in the flat but am worried the bailiffs will come and change the locks at any minute," says Mason. "What makes me angry is knowing that if I had still been renting from the council, housing benefit would have covered my rent when I lost my job and I would still have a home."

Sale and rent back
Some right-to-buy owners who land in difficulty are tempted by "sale and rent back" schemes, where they sell their property at a discount to a private company with the promise of remaining in it as a tenant. But Denise Rooney of Chas Housing Aid Centre, Kirklees, says many schemes fail to deliver: "We have cases where people are allowed to remain in the home for a much shorter time than they were led to believe or the company they sold their home to goes bust, the debt is sold on and they are evicted."

Right to buy homeowners whose properties are repossessed, including families with children, are not eligible to be rehoused because they are deemed "intentionally homeless". According to the housing charity Shelter, more than 600 households were classified as intentionally homeless due to mortgage arrears in 2008.

"The vast majority were people who had bought their homes under right-to-buy," says Shelter's Bill Rashleigh. "Many got mortgages from sub-prime lenders, which makes them ineligible for help under the government's homeowner mortgage support scheme and often they don't fit the narrow criteria for the mortgage rescue scheme either. So when the worst happens and they are evicted, they find there is no safety net."

A Consumer Focus spokesman says: "The government must ensure people go into right-to-buy with their eyes fully open and provide the level of help and support needed if they get into difficulties. Lenders should also be obliged to lend in a responsible way that takes account of their needs." © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds

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