From rent to repossession?: The latest attempt to turn council tenants into home-owners may not be the bargain it seems

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The Independent Online
COUNCIL tenants have been offered another route to home ownership through the rent-to- mortgage scheme, launched by the Government last week. But not everyone agrees that it will necessarily work in their best interests.

The scheme allows tenants to progress ultimately to own their houses while maintaining their current level of payments.

Housing analyst John Wriglesworth of stockbrokers UBS warns that it could become the rent-to-repossession scheme.' I hope the Government is going to warn council tenants about the risks of home ownership,' he said.

The gloss of owner-occupation is wearing off for some of the 1.5 million people who have made use of the existing right- to-buy provisions. Many ex- council houses are proving hard to sell, especially since the slump has widened the choice of properties affordable for first-time buyers. Even more seriously, lenders are refusing to give mortgages for some non- traditionally-built properties. In other words, some former council tenants are trapped in homes which will never find buyers.

According toTrevor Graham, a Birmingham building surveyor who has researched the subject, mortgage lenders have effectively withdrawn from lending on certain types of property. 'They keep the issue close to their chest because they don't want to be seen as bad boys, leaving people in the lurch. But regardless of what they say, I think they do have a blanket policy,' he said.

The 1984 Housing Defects Act, now consolidated in a later housing act, was supposed to protect right-to-buy purchasers of houses with structural problems. However, it has not been extended to cover all types of property where defects have been discovered. Designation involves a commitment to spend public money remedying or ultimately buying back defective properties.

Tens of thousands of steel- framed houses, typically semis built in the 1920s and 1930s andagain after the Second World War, are among those affected. 'The Building Research Establishment found defects in steel- framed dwellings, which make them probably unmortgageable. But the Government did not extend the list of designated properties to cover them,' said Mr Graham.

Properties constructed of large concrete panels are also subject to mortgage blight because of concerns over the fixing systems used.

These problems emerged as many local authorities encouraged right-to-buy purchasers to re-mortgage with building societies. Former tenants frequently arranged their original mortgage with their council, which was legally bound to offer loans, but this duty was abolished earlier this week.

Councils now have a financial incentive for shedding their mortgage portfolio. Until the end of this year they can retain 100 per cent of capital receipts, including money from redeemed mortgages, instead of the 25 per cent normally permitted by government rules.

Local authorities are eyeing this potential cash injection eagerly. The London Borough of Wandsworth, for example, has invited 1,000 of the council's mortgage borrowers to switch to the Woolwich, which says that about 200 have already done so. However, it has declined a further 1,500 mortgages offered by the borough, partly on the grounds of the type of building construction.

'There is no global transfer. The local authority is acting as an introducer, and we interview each individual separately,' said a Woolwich official.

The Woolwich has similararrangements with Wycombe, Windsor and Maidenhead, and South Oxfordshire councils. Bradford city council is about to invite 2,500 mortgage borrowers to consider switching to the Bradford & Bingley while Leeds council, with 3,000 borrowers, has a similar arrangement with the Leeds & Holbeck Building Society. Other authorities have chosen to set up deals with panels of building societies.

Transferring can benefit the borrower in some instances. Local authority mortgages are set according to a formula laid down by Department of the Environment, which means that they have been typically 1-2 per cent higher than the current standard variable mortgage rate of 7.99 per cent. Borrowers who switch can take advantage of fixed rates and other mortgage offers, and can also extend their borrowing at low cost.

However, re-mortgaging involves paying new valuation and legal fees, and also possibly arrangement fees and indemnity insurance premiums. Several local authorities have decided that it is financially worthwhile for them to meet part of these costs. Wigan council, for example, says that all transfer charges will be paid in a joint deal with the Cheshire Building Society. Harlow council is paying up to pounds 200 towards survey and legal fees.

Harlow is unusual in choosing an insurance company, GA Life, as its partner. John Whitehead, national development manager for GA Mortgage and Financial Services, says his firm is interested in extending its client base and is not simply trying to sell endowment-linked mortgages. He advises those considering switching to be cautious.

'You have to decide whether it's right to transfer the mortgage, because there are disadvantages as well as advantages. Forexample, in cases of payment difficulty, councils tend to be a lot more flexible than building societies.'

He points out that people in some types of property will not have the choice. 'Someone has a council mortgage on a non- mortgageable property - there's not going to be a way around that,' he said.

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