House price decline: The trust deed implications

25th July 2011

For some years many experts have questioned whether the cost of a house in the UK is sustainable. Such concerns have been brought into further focus by the inability of many to achieve sufficient mortgage support to establish a footing on the housing ladder. However, asking prices for homes have remained stubbornly high.

The inevitable forces of supply and demand finally seem to be catching up with the housing market. 70 per cent of the homes which have been put on the market in 2011 are not yet sold. Sellers appear to be waking up to the fact that they may need to be more realistic in the amount they’ll accept. According to the website Rightmove, average asking prices have now fallen by nearly £4,000 in a single month.

The home valuations used for the purpose of a trust deed work on a different basis to the optimistic expectations of a regular retail home seller. A Trustee is interested in the price a home can realistically fetch when it is to be sold relatively quickly. Without any real detriment of those individuals in a trust deed, this figure is often much lower than the inflated expectations of homeowners.

If sellers’ own expectations of the price they can achieve for their properties are declining it could be a sign the market is due another period of overall decline in average sale prices. This is likely to lead to a further reduction in the average valuations provided for the purposes of a trust deed.

The belief that equity exists in a property is a key factor which leads many to select measures other than a trust deed to deal with their debts. That makes sense, but only if the belief is rooted in the reality of quick-sale prices rather than the imaginary inflated values many homeowners have been reluctant to abandon. A debt management plan and the debt arrangement scheme do not specifically include a home in the same way as a trust deed, but as the full amount of the debt total must be repaid they can be a very long-winded solution.

So what should homeowners who are struggling with debt do?

Firstly we’d suggest they are very realistic about the price their property will actually sell for. They may even wish to pay for a formal valuation based upon a quick sale (perhaps using a valuing agent recommended by a trust deed provider). It is understood that money will be tight and valuations aren’t cheap. However, this valuation could help you to avoid equity problems in a trust deed (if there is some) or to avoid a very long debt management plan or debt arrangement scheme (if there is no equity).

Secondly we’d suggest that if they’re considering a trust deed, that they do not sign the documentation until they have written evidence regarding their equity agreement. What will happen if there is no equity in the first valuation? Will there be another valuation later? Are you being asked to pay £500 for any reason and if so, why? If there is some equity, how will it be paid? It is imperative to know exactly where you stand before you go ahead, and also to put yourself in a position where you can prove exactly what you’ve been told.

A final point: homeowners who believe they have equity should not sign a trust deed unless they know how they’ll eventually pay it over. Mortgages and loans to extract the equity basically don’t exist anymore. Making extra monthly trust deed contributions is unlikely to be acceptable unless the value can be covered within a reasonable period. Can family or friends help? Very few will be lucky enough to have this support.

We hope you have found this article of value. For further trust deed news please browse our trust deed news archive.

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