Memorandum by the Council of Mortgage
Lenders (EMP 57)
1. The Council of Mortgage Lenders welcomes
this opportunity to submit a memorandum to the House of Commons
Select Committee on Transport, Local Government and the Regions
Inquiry into Empty Homes.
2. The CML is the representative trade association
for mortgage lenders in the UK. Its 118 members are banks, building
societies, and other specialist mortgage lenders who together
undertake around 98 per cent of all residential lending in the
3. Key points:
Consequences of long-term empty homes
However, a certain level of vacant
properties are necessary to allow the housing system to function
Not all privately owned empty properties
The plans to allow householders to
retain their homes when moving into care and to charge costs against
their homes may increase the number of "empty" private
Difficult for lenders and/or local
authorities to take action if the property is in good repair and
mortgage is being paid;
Owners are often reluctant to let
In selected areas low demand may
also be a factor, often combined with negative equity;
Empty homes need to be addressed
as part of a wider housing strategy; and
Ways forward might encompass "Home
Swaps", further consideration of compulsory purchase orders,
financial incentives, and cuts in VAT for renovation.
4. Lenders are involved in all sectors of
the property market, not only owner occupied but also the private
rented sector and social housing. The Department for Transport,
Local Government and the Regions (DTLR) statistical data shows
that the majority of vacant properties are privately owned. The
consequences of empty homes are many. Large numbers of empty homes
can be a factor in inhibiting the regeneration of an area. Empty
housing increases the sense of decay and may encourage crime as
well as giving people more reasons for leaving the area (thus
exacerbating the problem). Even a single empty home can cause
problems. The Royal Institute of Chartered Surveyors estimates
that if you live next door to a long term empty home, your property
is likely to be devalued by at least 10 per cent.
5. It is inevitable though, that a number
of dwellings will be vacant at any one time to allow the housing
market to function effectively. Different data sources gave a
vacancy rate in the total housing stock of between 3.4 per cent
and 4.6 per cent in 1991. A higher rate may be justified now to
facilitate longer distance and more frequent moves. It has always
been the case that vacancy rates are higher in the private sector
than in social housing (though this may now be changing).
Why are private properties empty?
6. It would be helpful to know more about
why privately owned properties are empty. There has been little
research on the nature and extent of the problem and how this
has changed over time. The last DTLR study "Vacant Dwellings
in the Private Sector" was published in 1996. The study concluded
There were two main types of vacant
property in the private sector:
Transactional vacancies which
might be expected to be re-occupied quickly. These are necessary
for the mobility of the housing market; and
Problematic vacancies which are
often in poor condition and vacancy is likely to be prolonged.
Problematic vacancies are over-represented
among the private rented sector.
They tend to be concentrated amongst
pre-1919 terraced houses and converted flats.
Half the problematic vacancies would
cost more than £5,000 to bring back into long-term use.
Most vacant property changed hands
before being brought back into use.
The main reason for vacancy generation
was related to the death of the previous occupant or their movement
into hospital or long-term care (27 per cent and 14 per cent respectively
giving a total of 41 per cent).
A lack of resources for improvement
was often a major barrier to the speedy re-use of empty housing.
7. The current plans for long term care
and encouraging people to release the equity in their homes are
likely to increase the number of "empty" homes.
Tackling privately owned empty homes
8. It should be remembered that not all
privately owned empty homes will be mortgaged, they will often
be owned outright. There is a real issue of what local authorities
can do about empty homes in this category. Likewise what can a
local authority and/or lender realistically do if a property is
empty but the mortgage is being paid? An owner might quite rationally
hold property empty, not least for a capital gain but also for
many other reasons. In the current volatile economic market people
consider property to be a relatively "safe" investment
and may be willing to continue to pay for it even if the property
is not being used.
9. If the property starts to fall into disrepair,
neighbours complain to the local authority but the local authority
only has power to take action if the property becomes a danger
to health or safety. Whilst the mortgage conditions require borrowers
to keep the property in a good state of repair this is very difficult
to enforce if the mortgage is up to date. In addition, a lender
may not know that a property is in disrepair or unoccupied unless
they are advised accordingly.
10. It is clear that not all empty property
is damaging to individuals, areas or the country, but we can create
a package of incentives/disincentives for it to be limited. One
solution is for the owner to let the property out if they do not
want to live in it themselves. However, one reason why this is
not done more widely is that owners still believe they cannot
get tenants out. There is still considerable ignorance about landlord
and tenant law and continuing fear that the Government will act
to tighten the freedom currently enjoyed by landlords.
11. The possibility of Registered Social
Landlords (RSLs) taking on the leasing of empty properties has
also been explored. Again owners are fearful that they will not
be able to get tenants out or they do not want tenants who are
reliant on Housing Benefit. In addition, RSLs are often looking
for a long-term lease, sometimes five to seven years which may
not suit either the borrower or the lender. Lenders are often
reluctant to effectively change a residential lending arrangement
into a commercial one. RSLs argue that it is not worth their while
to invest in the administration and necessary repairs and maintenance
for the property for a shorter period. The key consideration for
lenders is their ability to repossess if it all went wrong. As
a result of these difficulties, these schemes have not been widely
taken up. They do operate in some areas but should not be seen
12. Low Demand is often a factor where there
are large numbers of empty homes. DTLR estimate that there are
470,000 homes in the social rented sector and 375,000 homes in
the private sector which are in areas of low demand. Research
recently published by the CML concluded that low demand is the
result of economic restructuring, de-population, the physical
and social decline of specific neighbourhoods and cumulative processes
of decline and abandonment. It may be manifested in high void
levels, stagnant and collapsing house prices, severe negative
equity, speculative landlordism and apathy towards maintaining
stock condition. A copy of the CML research paper "Low Demand
in the Owner-Occupied Sector: Issues for Lenders" is enclosed
for the Committee.
13. The report of the Policy Action Team
7 (PAT 7) "Unpopular Housing" explored the nature of
low demand and unpopular housing and made a series of recommendations
for tackling these problems across all tenures. The PAT 7 report
highlighted a range of strategies that are being developed for
problematic private sector stock, including declarations for Renewal
Area status, bids for other area-based programmes such as the
Single Regeneration Budget, empty property strategies, Compulsory
Purchase Orders (CPO) and selective demolition within renewal
or clearance areas. However, the report puts emphasis on a key
research finding that in over a quarter of private sector areas
that were defined as problematic by the responding local authority,
no action was reported.
14. Low demand has been prominent in the
recent housing policy debate including the Housing Green Paper
and the subsequent Housing Statement. For example, the Housing
Green Paper recognises that in areas of chronic low demand, renewal
may not be a viable long-term solution and selective or wholesale
clearance may be the only option.
Strategies for dealing with empty homes
15. This suggests that the problem of empty
homes needs to be addressed as part of a wider housing strategy.
DTLR have commissioned research to explore the decision making
processes and the types of successful strategies that are being
developed by local authorities and other housing and regeneration
practitioners to tackle the problems associated with run-down
private sector housing. CML welcomes this research, the results
of which should help to identify best practice.
16. Specific initiatives are being trialled.
The CML and the Local Government Association are working with
DTLR and specific local authorities to address some of the problems
in declining areas. In Salford a "Home Swap" policy
is being used as part of a wider regeneration initiative in partnership
with a lender to facilitate clearance. Home Swap allows negative
equity home owners to move to improved homes within the area with
greater mortgage security whilst at the same time freeing up a
strategic site for development of better housing at lower density.
17. A commitment was made in the Urban White
Paper to "consolidate, codify and simplify" the law
relating to compulsory purchase and compensation when Parliamentary
time allows. CML broadly welcomes this, as the current powers
are not always broad enough to facilitate clearance. However,
CPO needs to be used with care as news that CPO powers are to
be used can depress markets further. In addition, some local authorities
have suggested that lenders should bear part of the loss when
a home owner in negative equity has their property compulsory
purchased. This will only serve to damage lender confidence in
regeneration areas. Initiatives such as Home Swap where the lender
works in partnership with the local authority are much more likely
to be successful.
18. For lenders, intervention in a low demand
area has to be justified and the response must be appropriate
and measured. The case for intervention (and a positive role for
lenders) is stronger when it relates to actions that support the
mortgage security in the property and acts to stabilise local
19. A common solution suggested by lenders
during consultation on the CML research mentioned above concerned
insurance. One possibility would be the underwriting of new loans
in low demand areas by a capitalised vehicle similar to Fannie
Mae in the USA (the Federal Mortgage Provider). Alternatively,
local authorities could underwrite loans (provided the attendant
risks are properly priced and insured). Assuming that any insurance
solution could be set up, it only works for new lending, not the
existing mortgage book. However, if new lending was underwritten,
this may enhance market confidence in the area and help to promote
20. Measures such as charging full council
tax on empty homes may help but strategies for dealing with empty
homes need to think about incentives as well as penalties. We
welcome the measures announced in the Budget 2001 which may help
to reduce the number of empty homes. These include abolishing
stamp duty on property transactions in Britain's most disadvantaged
communities and 100 per cent capital allowance for converting
space above shops into flats. It needs to be recognised that definitions
are a problem though. How are "disadvantaged communities"
identified? And does labelling a community "disadvantaged"
create its own problems? The Government have found similar problems
in its proposals for reforming the home buying/selling process
in areas of low value/low demand housing.
21. We also welcome the announcements in
the Government's Housing statement and the Budget to cut the VAT
rate to five per cent for residential conversions and removing
the VAT burden on the sale of renovated houses that have been
empty for 10 years or more. We suggest that period be reduced
to five years to encourage more empty homes to be brought back
into use. This would need to be linked to a local authority Empty
Homes Strategy otherwise the local authority will not know where
the empty homes are and owners will not be aware of incentives
available to them to bring them back into use.
22. One reason that properties are not brought
back into use is because of the cost of repairs and maintenance
that may be required. We therefore welcome the Government's proposals
to simplify the current regime for local authority loans or grants
for private sector housing renewal. However, there is a concern
that the increased discretion available to local authorities could
lead to a multiplicity of schemes and product requirements. Too
much variety will restrain lenders appetite for the home improvement
loan market. DTLR and the National Assembly for Wales will need
to give detailed guidance to authorities on how they might operate
any new system. This need not be unduly prescriptive. It is also
crucial that sufficient safeguards are retained to protect individuals
and lenders. We understand that proposals are due to be brought
before Parliament this autumn.
23. A further incentive to renovate would
be the reduction of VAT on home improvements and repairs. The
current 17.5 per cent rate is a disincentive to refurbishment
and encourages people who do not want to incur further costs to
use "cowboy" builders. Reducing or removing VAT on home
improvement could significantly encourage investment in the existing
24. Clearly the issues surrounding empty
homes are complex and will require co-operation between public
and private sectors if they are to be comprehensively dealt with.
The CML and its members have been and remain, open to suggestions
about how to tackle these problems and, indeed, have been involved
in local initiatives. However, lenders are clear that while they
can help address some of the problems that arise, the primary
responsibility for urban regeneration issues lies with central
and local government.
25 September 2001