Julian Knight: 'Frankly, not all lenders are gentlemen.' Fears over three-month respite on repossessions

The three-month breathing space for homeowners facing repossession because of mortgage arrears will have only a "marginal effect" on the number of properties seized by lenders, according to the housing charity Shelter.

Adam Sampson, director of Shelter, has cast doubt on whether the three-month respite, announced in the pre-Budget report last week, will slow the pace of repossession, which the Council of Mortgage Lenders believes will shoot up by 50 per cent this year. "Most mainstream lenders only go for repossession after three missed monthly mortgage repayments anyway," he says. "And this is a gentleman's agreement and, to be frank, not all lenders are gentlemen."

In particular, Mr Sampson is concerned that some of the sub-prime lenders and firms specialising in second mortgages will not adhere to the three-month moratorium on repossessions: "We see instances of these firms going after people's homes after just one missed repayment."

The Government has issued guidelines to courts that they should only grant repossession if the lender has taken "reasonable steps" to contact the borrower. But this is not enough, according to Mr Sampson: "This isn't binding on judges. What would be best would be for this requirement and the three-month arrears rule to be written into the Banking Bill currently going through Parliament. In addition, people facing repossession proceedings should be allowed legal aid. At present, they face the ridiculous situation that they are barred from properly defending their property, through accessing legal aid, because they're property owners."

Lenders, though, say they are already being more understanding. "On average we repossess only after nine or 10 missed mortgage payments, and I don't think many high-street lenders are that different to us," says Matthew Bullock chief executive of Norwich & Peterborough building society.

"It's the second-mortgage companies and sub-prime which are driving early repossession, and hopefully the pre-Budget announcement will help the courts throw some of these claims out," Mr Bullock adds.

And earlier this month The Independent on Sunday reported that Northern Rock had pledged to debt charities that it would take a more sympathetic and flexible approach to people in arrears. The nationalised bank had previously faced a barrage of criticism over its hasty approach to repossession.

Whatever the attitude of the lenders, though, Mr Sampson says 2009 could see the courts as busy as ever. "Next year, as far as the number of repossessions is concerned, I think all bets are off. Instead of the problem of people coming off fixed-rate mortgage deals and seeing their repayments go up dramatically, we'll see the more dramatic twin difficulties of much higher unemployment and negative equity," he says.