Member Article

Expert?s warning: Homes at risk for £1000 debts

Rules introduced this week could see homeowners lose their homes over debts as small as £1000 – leading to North East housing expert Ajay Jagota to warn of the risk of a “dangerous domino effect” which could leaves tenants homeless.

Monday April 8 2013 saw new Charging Order Regulations come into force, changing the way creditors can force the sale of property to repay outstanding debts.

When creditors take legal action against debtor, the courts will typically impose County Court Judgements (CCJ) ordering the repayment of the money in instalments. If this does not lead to the settling of the debt the courts can then impose a Charging Order, securing the debt against assets like property, forcing debtors to sell their homes.

The new rules lower the threshold for creditors applying for a Charging Order to debts of just £1000 and remove the restriction that Charging Orders can only be imposed if a debtor has missed a repayment instalment set out by a County Court Judgement. Charging Orders can now be imposed the same time as the CCJ.

Experts like Ajay Jagota of KIS Lettings - who manage properties for some 700 landlords across the North East from branches in Sunderland, North Tyneside and South Tyneside – fear the changes could lead to a surge in the numbers of people with Charging Orders on their properties, in particular if house prices rise, making property sales more attractive to debtors.

Ajay said: “On the face of it, these changes clearly vindicate the value of KIS Lettings’ unique deposit free renting, where new tenants instead nominate a guarantor of their tenancy, making it easier for landlords to find and keep good tenants, and giving them peace of mind that they are legally covered when things go wrong.

“The risk is though, that doesn’t tell the whole story. The worst case scenario is these changes kickstart a dangerous domino effect. Many landlords are still paying off mortgages on their properties and if their tenants default on their rent, the risk is they could default on their mortgage.

“People having to sell their house to pay off debt should always be a last resort and I hope lenders use their common sense and use these powers sparingly.

“In light of what we know about the behaviour of lenders in recent years and with the Office of Fair Trading having already censured lenders like NatWest, the Royal Bank of Scotland, Alliance & Leicester for misusing charging orders this year the worry is they don’t, so now could be a good time for landlords to talk this issue through with a lettings expert.”

This was posted in Bdaily's Members' News section by Ajay Jagota .