Byline: By Nicky Burridge Special Correspondent
People on low incomes are being encouraged to take out mortgages they cannot afford, leaving them deep in debt and facing the prospect of homelessness, a report warned yesterday.
Citizens Advice said dubious advice from brokers, irresponsible lending decisions and aggressive arrears management by sub-prime lenders was driving the current increase in mortgage arrears.
The charity warned that the regulations and safety nets currently in place were failing to protect vulnerable borrowers.
It added that Government policy encouraging people on lower incomes to buy their own homes could only work if these problems were addressed.
The group said people on low incomes tended to rely on brokers and often ended up with inappropriate and unaffordable mortgages, with people buying their council homes often given particularly bad advice.
Some brokers encouraged borrowers who were under the greatest financial pressure to exaggerate their income, while others even submitted false information without the borrower's knowledge.
It said many lenders and brokers failed to carry out basic checks to ensure that borrowers would be able to meet the increased payments when discounted or fixed deals ended, and some had not even checked that payments could be afforded from the outset.
Citizens Advice Bureaux dealt with more than 57,000 problems relating to mortgage and secured loan arrears in 2006/2007, an 11 per cent jump on the previous year.
It said most seeking advice on such issues were on low incomes, more than a third of whom had incomes below the UK poverty line, while one in five were reliant on means-tested benefits.
Around 70 per cent of these people, who tended to have borrowed from sub-prime lenders at higher rates of interest, also had outstanding unsecured debts averaging pounds 22,000.
The group said many people who borrowed from sub-prime lenders started to struggle with repayments early on in the term of their mortgage.
It also found evidence that these lenders were often unwilling to negotiate affordable repayment arrangements with people in difficulties, taking court action for relatively small levels of arrears.
It added that the hard-line approach taken by lenders in threatening to take people to court, as well as their tendency to increase debt levels by piling on penalty default charges, drove many people to try to solve the problem by remortgaging or taking out other loans. …