Consultation launched on legal protection for homeowners

A consultation has been released looking at whether homeowners who have run up non-mortgage debt should have to reached a particular level of indebtedness before a court can order the sale of their home to cover their repayments.

Currently the system dictates that homeowners who have accumulated unsecured debt on credit and store cards which they subsequently find they can’t pay, can have a ‘charging order’ placed on their home to secure the debts.

Very occasionally, the charging order is then followed by an 'order for sale', when a judge rules that the property has to be sold off straight away to pay the unsecured debt.

The new consultation asks whether there needs to be a minimum level of debt accrued before a sale order can be applied to a property. Such a minimum would effectively give homeowners greater protection.

Justice Minister Bridget Prentice said:

“We know that only a small proportion of charging orders result in the property being sold, so it's rare for a debtor to lose their home because of things such as unpaid credit cards.

“There are currently a number of safeguards in place to protect homeowners, while ensuring the creditors who need to recoup their money are able to do so.

“But it's important that the Government consider whether there is a risk that the numbers will increase due to the current economic situation, and whether this could result in more people losing their homes because of relatively low levels of debt which they are unable to pay.

“We're asking for views on whether a minimum threshold should be introduced in law, to prevent this from occurring.”

The consultation will last until 30 April 2010.

Since the start of the economic crisis, the Government has announced a number of initiatives to protect struggling homeowners, including asking mortgage lenders to exercise ‘forbearance’, and only to look to repossess property as a last resort.