Property: A good reason to be bankrupt

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The Independent Online
HOME OWNERS facing repossession should do their utmost to sell their house rather than leave it to the lender, according to a debt adviser. They should then declare themselves bankrupt, opening a way back in to the housing market.

Nick Pearson, of the Leyton Advice Centre, told a London Housing Unit conference that two-thirds of repossessions were sold at a loss, leaving an average debt of between pounds 19,000 and pounds 24,000. This could prevent former owners from buying again.

By selling before repossession, owners could gain a better price and ease their burden. Lenders try to prevent this, but one owner recently won a legal battle when a sale was blocked and the house went for a much lower price after repossession.

In the past, most debts have been written off, mainly because building societies are reluctant to damage their 'friendly' image by kicking people when they are down.

However, this could be about to change, after one lender admitted privately to Mr Pearson that it was setting up a pilot scheme to chase debts. Former owners should scrape together the fee of pounds 155 and declare themselves bankrupt, he advises, since this normally results in debts being written off within three years. But they will have to hurry because the credit industry is already trying to close this loophole.

A REPORT in Roof magazine says that both short-term debt and repossessions are falling, although in the 12 months to March 60,000 owners still lost their homes. But the number of owners more than six months in arrears appears to have risen by 25 per cent to 360,000.

This rise is illusory, according to Adam Cole, of the stockbrokers James Capel. Total debt has not risen, he says. Instead, people's debts date back to days when interest rates were much higher. The building societies say how much must be paid off each month according to present, lower rates. As a result, the debt remains the same, the repayments each month are smaller, but the time in which the debt has to be paid off becomes longer. In other words, someone six months in arrears when interest rates are at 16 per cent will transform to 12 months in arrears at 6 per cent, he says in a letter to the Financial Times.

The rate of repossession has almost halved since early 1992, and many owners have been pulled back from the brink by reduced outgoings.

THIS heavy burden will be relieved only by rising values and low interest rates. One influential forecaster is promising both, but it will be a long haul. Values will continue to drift downwards this year, ending up 2 per cent lower than in 1992, says James Morrell in an update of his regular market analysis for Charterhouse Bank. But the figures will then take off, producing increases of 5-6 per cent every year to 1998.

Meanwhile, interest rates are likely to fall and remain low as the Government pursues a policy of containing inflation. The current surge in buying provides solid evidence for recovery, he says. Price rises have generally lagged a year behind increases in transactions, so we can expect values to begin their climb in 1994.

THE FURORE over negative equity has diverted attention from the massive wealth that the nation collectively holds in property. About 1.3 million people were living in homes worth an average of pounds 2,800 less than their mortgages at the end of 1992, according to Steve Wilcox in the Joseph Rowntree Foundation's 1993 Housing Finance Review.

This amounts to about pounds 3.6bn compared to the pounds 770bn positive equity held by the country's home owners. The Government has made a little pile, too. Council house sales brought in pounds 28bn - more than the combined income from privatising gas, electricity and BT.