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Housing loans – Administration - Craft Christmas Magazine|Craft Christmas Magazine

Housing loans – Administration

Jul 13, 2012 by gerribellerssen

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Public provision of loans clearly has associated administrative costs, although it may be possible to minimise such costs through partnership with private loan providers and other agencies.

Administrative costs of current schemes
It is difficult to obtain information about the administration costs of the current system of housing loans offered by local authorities. These costs are not typically separated from the total administration cost of housing services offered by local authorities.

However, information about default rates for local authority loans is collected centrally. The most recent figures (March 2011) show that 6.4% of loans for council house purchase were in arrears of six months or more. The value of these arrears represents just over 2% of the outstanding debt. Similar figures for other types of local authority housing loans (mainly for home improvement) show that about 12.5% loans are currently in arrears of six months or more, representing just under 9% of the outstanding debt. Perhaps unsurprisingly, these figures do not compare well with private mortgage default rates. The Council of Mortgage Lenders estimate that about 0.6% of house purchasers were in arrears of six months of more with their mortgage payments in June 2011. The difference between private mortgage default rates and local authority mortgage default rates is probably due to the worse financial position of those receiving local authority loans, but also because most of these borrowers are first-time borrowers, who tend to have a higher risk of arrears.

With the existing Homebuy scheme, the RSLs have responsibility for publicising and marketing the scheme, and for administering the application process (including vetting applicants to check their capacity to sustain home ownership). These administration costs are covered by a grant from government, set at 3% of the price of the properties. The average property price in England for the Homebuy scheme in 2010 was about ?79,000 (for London the average was ?95,000). The administrative costs in 1999/2000 therefore amounted to some ?2.1 million, or about ?2,370 per property (?2,850 for London).

Once an application for a Homebuy loan has been accepted, the RSL secures the loan through a second charge on the property. The Land Registry holds a register of the outstanding charges on a property so that when the Homebuy purchaser wishes to sell, their solicitor or legal representative must first inform the RSL. If the Homebuy purchaser wishes to repay the loan before the home is sold, the RSL must obtain an open market valuation (disregarding the value of any improvements carried out by the vendor), by an independent qualified valuer acceptable to both parties. The cost of the valuation is the responsibility of the owner-occupier. Because the Homebuy scheme does not require repayment of the loan until the property is sold, default is not really a relevant issue.

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