The legislation, in partnership with banks and credit companies, would see charging orders – where a home is sold, the mortgage cleared and the money going towards the debts – being allowed against those keeping-up agreed payments. Currently an order can only be made if two consecutive payments of an arranged instalment plan are missed.
Charging orders have escalated by 32,000 over the last five years. In 1999, 13,000 orders were made with 45,000 in 2004. A Department of Constitutional Affairs paper defining plans for stronger enforcement powers stated: ‘The government is committed to tackling over-indebtedness and addressing concerns about increased levels of consumer debt.’
It believes if people realise their home is at risk, they will be less prepared to borrow excessively on credit cards.
However, commentators believe secured and unsecured loans must be kept distinct. Genworth Financial has called for the government and lenders to do more to educate the public and debt management groups want a disclaimer similar to that required for mortgages displayed on unsecured loan advertising if the proposal succeeds.
Rachel Blackmore, external affairs manager at the Building Societies Association (BSA), said: “I’d be surprised if there’s time for the government to bring this forward in legislation as it already has many controversial bills to debate. There’s clearly a difference between a debtor selling their home and using equity to pay the debt post-sale and issuing a charging order that could enable creditors to force through a repossession.
“ It’s important the differences between unsecured and secured loans are not blurred. Ahead of any proposed changes it’s vital consumers are made aware in advance of the potential risk, even if their debts are unsecured.”
