Assisted Voluntary Sales schemes should, in theory, present a more attractive option for borrowers who have fallen into arrears on their mortgage.
An AVS allows some borrowers to get support from their lender to sell their property to avoid possession, such as through the appointment of an asset manager or in marketing the property. The borrower must co-operate with the lender, asset manager, estate agent and solicitor to progress the sale.
Other options include:
- Compulsary possession, where the borrower loses the property through repossession
- Voluntary possession, where the borrower returns the keys to the lender before possession proceedings begin
- The government’s Mortgage Rescue Scheme where the borrower is able to remain in the home and retain homeownership with an equity loan or by becoming an assured shorthold tenant of a housing association
- Voluntary sale, where the borrower puts the property on the market for sale independently.
Going down the AVS route allows homeowners to sell their home without the stigma of having it repossessed, achieve a better price for their property by presenting it as an occupied residence and, in most cases, get the professional help of an asset management company to help secure a buyer.
In reality, the AVS schemes lenders have offered are littered with problems and challenges predominantly concerned with the onward housing needs of the borrower.
It is no surprise that up to now there has not been a high take-up of lenders’ AVS schemes.
Indeed, research from the University of York and commissioned by housing and homelessness charity Shelter in March 2012 found only 345 borrowers using AVS across 11 different lenders.
Why is this? Because the AVS schemes available have not presented borrowers with viable options for how they are going to re-home themselves and their families.
For instance, most borrowers using AVS have two options when it comes to finding alternative accommodation.
They can either go into social housing or enter the private rental sector. In the case of the former option, where borrowers look to be re-homed in social housing, they are likely to be placed in temporary accommodation, perhaps a bed and breakfast, until a more permanent solution is found.
When a property is found it may be in an unknown location regardless of the work and school commitments of the relocating individual or family.
Add to this that many local authorities do not recognise AVS as a valid route to being homeless with many borrowers being classified as ‘intentionally homeless’ and the problems of being appropriately re-housed in social housing soon mount up.
AVS candidates opting to find private rented accommodation face other challenges, namely the lack of funds for an initial deposit and impaired credit histories which can negatively impact on tenant referencing carried out by landlords.
Clearly, private rentals are the best option in terms of re-homing individuals and families in the same geographical area so as to cause the least amount of stress and disruption to their lives but without funds for a deposit or some sort of insurance or guarantor against their credit history, they are often prevented from taking this option.
Based on these reasons, it is little wonder that we at Connells Asset Management see around 50 per cent of AVS cases cancelling or withdrawing from the scheme despite incentives from lenders.
With benefits for both the lender and borrower from getting the AVS process right, more needs to be done to address the current barriers and find ways of making AVS easier.
Overcoming barriers to AVS
At the Council of Mortgage Lenders recent Mortgage Arrears and Possessions Conference in Leeds, Connells Asset Management announced a new scheme designed to overcome the usual onward housing barriers associated with AVS.
We believe this scheme, entitled AVS Fresh Start, will incentivise borrowers to go down the AVS route rather than having their homes repossessed while simultaneously ensuring they can be re-housed in private rental accommodation.
Unlike previous AVS schemes, AVS Fresh Start incorporates a number of innovations, the most significant being an insurance policy which protects the landlord from the pitfalls of accepting a credit-impaired tenant by underwriting the borrower.
This should allow the borrower to secure their onward home without the need for a deposit, as dilapidations and loss of rent are covered within the policy, even with a known poor credit history. The scheme also provides an assessment of the borrower’s housing benefit entitlement so they know upfront how much they have to spend on rental payments.
Lenders clearly benefit from selling the property at a higher price as an occupied residence as well as avoiding the costs and delays of formal repossession proceedings. The benefits to the borrower are numerous including the opportunity to choose the location of their new home and so cause minimal disruption in terms of travel to work or school, achieving a greater price for their property means there is less of a shortfall for them and, finally, the chance to forgo the social stigma of having their home repossessed.
Having the landlord insurance product in place as part of AVS Fresh Start means the borrower can control their onward housing requirements, rather than facing insurmountable barriers and ultimately having to face repossession.
We at Connells Asset Management believe AVS Fresh Start will revolutionise the AVS process and it was well received at the CML conference on 13 September.
The innovations provided by the scheme, namely the chance for borrowers to understand their housing benefit entitlement and an insurance product which covers private landlords, should allow individuals and families to be re-housed more effectively and provide a big incentive to opt for AVS.