Report recommends safety net for home-owners at risk of repossession

The growing number of home-owners at risk of repossession could be helped by a new form of insurance which would cover ten months of complete mortgage payments, should they face unemployment, sickness or have an accident.

A report published by the Joseph Rowntree Foundation recommends implementation of the Sustainable Home Ownership Partnership (SHOP) scheme, a partnership between Government, lenders and borrowers, providing a much cheaper form of insurance than similar private insurance products currently available.

If the economy were to experience similar circumstances now as those it faced in 1992 at the peak of the housing market collapse, almost 25% more home owners would be at risk of repossession. The JRF’s report – Developing safety nets for home-owners which stems from an earlier inquiry into home ownership – responds to the inadequacies of existing safety nets and recommends SHOP and Housing Tax Credits as effective solutions in a bigger package of support.

It suggests that the cost of SHOP could be shared between Government (25%), lenders (25%) and borrowers (50%). In order to minimise the impact on public spending, and ensure transparency and accountability, the SHOP scheme should be a joint venture between lenders and Government. The SHOP scheme would also provide lenders with an incentive to lend more responsibly as they would have to contribute more if their repossession rates were higher than the average.

Report co-author Mark Stephens from the Centre for Housing Policy said: “Since 1995, restrictions to the state safety net mean home-owners have to wait nine months for any help. Take-up of private insurance is so low that only one-fifth of home-owners are protected.”

A Housing Tax Credit would complement SHOP by providing assistance to home-owners in low-paid work. This would support people who face a sharp drop in income without becoming wholly unemployed, and also make it easier for home-owners to move from SHOP into low-paid employment without facing a net reduction in their incomes.

SHOP is not intended for second home-owners or private landlords. The research team behind the report suggest it be made compulsory for all new borrowers and those who remortgage. While initial coverage would be limited, this would increase rapidly as new mortgages represent 10% of all mortgages.

Report co-author Steve Wilcox concluded: “The policy introduced in 1995 isn’t working. Vulnerable home-owners are now more exposed to risk than they were in 1992. With housing market conditions tightening it’s time to re-think how to best help these households and to provide better underpinning for the housing market – and the wider economy. We hope that this report will kick-start a debate on how policy should change to meet modern-day housing needs.”