Case opens door for home owners to force sale

A LANDMARK case in the Court of Appeal last week has opened the door for thousands of people to sell their homes even if the sale price is less than the amount owed on the mortgage.

The case involved a couple who took out a mortgage of pounds 300,000 in April 1990. They paid just three repayments when the husband got into financial difficulties.

In March 1991, they found a buyer who was willing to pay pounds 283,000. However, by then the mortgage owing was pounds 358,587.

The lender refused to allow the sale, and got a repossession order so that it could let the house until the property market improved.

Meanwhile, the arrears were mounting. The couple went to court to force the lender to sell. The couple originally lost the case, but the Court of Appeal judges said that lenders should not be allowed to speculate on the property market at the expense of the borrower.

The Council of Mortgage Lenders is trying to play down the importance of the case by saying that there were special circumstances.

However, John Samson, property partner with the solicitors Nabarro Nathanson, said: 'Lots of borrowers have mortgages greater than the value of their home. The case opens the door to these people to insist on a sale.'

The case is not a blanket get- out for everyone to walk away from their mortgage. You will not be able to force a sale where it is possible to let the property and the income from the letting is almost as high or higher than the amount of the mortgage interest.

If you are experiencing financial problems always speak to your lender. Mr Samson advises that you should try to sell the property first; if the lender objects, then use the case to force a sale.

Not all borrowers with loans larger than the value of their homes are unable to afford their payments, but they may be unable to move house.

Some lenders have allowed borrowers in this position to take part of their old debt with them. This is added to the next loan. Nationwide Building Society is working on a specially designed 'negative equity' scheme, which it hopes to launch in the autumn.

This week Abbey National suggested that the Government consider a scheme whereby the losses on a home would be offset against the borrower's income-tax bill. Any surplus could be used to pay off remaining debt and fund the purchase of the next property.

The bank believes that it is crucial to help people stuck in the 'negative equity' trap in order to get the housing market moving.

Other lenders would prefer something that helps to reduce monthly payments by increasing mortgage interest tax relief. Borrowers only receive relief at 25 per cent on up to pounds 30,000 of borrowings, a ceiling that has not increased since 1983. If it had kept pace with inflation, borrowers would now receive relief on pounds 60,000 of borrowing.

According to Woolwich Building Society, which advocates an increase in the interest relief ceiling, a first-time buyer taking out a pounds 60,000 endowment loan, and receiving the society's 2.5 per cent first-time buyers' discount, would save more than pounds 3,000 over five years.