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Mortgage pre-action protocol is working, solicitors say

2 September 2009

The mortgage pre-action protocol is behind the sharp drop in repossession claims this year, solicitors have said.

When the protocol was introduced in November 2008, lawyers complained it lacked teeth, including the president of the Law Society at the time, Paul Marsh (see Solicitors Journal 152/47, 9 December 2008).

However, seasonally-adjusted figures from the MoJ show that there were 26,215 repossession claims in the second quarter of this year, 32 per cent less than in the same quarter last year.

Although the total was up by 14 per cent on the first quarter of 2009, the number of repossession claims resulting in a court order fell slightly, from 19,336 to 19,064.

MoJ officials have estimated from administrative records that the initial impact of the protocol was to halve the number of repossession claims.

Tim Powell, joint senior partner of Powell Forster in Brixton, south London, is a duty solicitor at housing and repossession hearings. He said the protocol had made lenders much more willing to discuss alternatives to outright possession orders.

“I have noticed both an increase in claims and a change in behaviour,” he said. “Many more borrowers have been able to reach agreement with lenders before their hearings. I’m not surprised the number of repossessions has reduced.

“Where there has been non-compliance by lenders, district judges have been prepared to adjourn cases to make sure the protocol is followed.”

Powell gave as an example of a case which was adjourned after a lender failed to show it had discussed a woman’s suggestion that she should be allowed to pay her repayment mortgage instalments on an interest-only basis.

However, Powell said second mortgage lenders were more reluctant to follow the protocol, perhaps because the risks they faced were greater.

John Gallagher, principal solicitor at Shelter, was on the Civil Justice Council committee which drew up the protocol. He said that the rent arrears protocol, introduced in October 2006, had cut repossessions in the following couple of quarters, only for the rate to rise to close to what it had been.

“It’s too early to make a confident judgment on the mortgage protocol, but there are grounds to be optimistic that it will have a permanent effect,” he said.

“There are things lenders can do to improve the situation that are not open to a landlord. Lenders can be more imaginative. They can extend the period of the loan, capitalise arrears or allow payment holidays.”

He added that the protocol was part of a bigger picture in which the government was putting pressure on lenders to be more sympathetic to borrowers.

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