The Homeowner Mortgage Support Scheme
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Released 10 December 2008
The Government today announced further details of the Homeowner Mortgage
Support Scheme, intended to provide greater assurance to homeowners that they
will be able to remain in their homes if they suffer a temporary fall in income,
but are expected to recover at a later date.
The new scheme will provide a bridge, giving homeowners who
are experiencing financial problems sufficient time to find new employment or
recover income, without the added concern and stress of potentially losing their
home in the interim.
This complements our current framework of support, including
the Support for Mortgage Interest (SMI) scheme, which is aimed primarily at
households where no one is in work.
The scheme will allow lenders to reduce a borrower’s current
monthly mortgage payments, with the deferred payments rolled up, added to the
principal, and paid at a later date when the borrower’s financial circumstances
have improved. The Government will guarantee the lender against a proportion of
any loss incurred on the deferred interest payments in case the borrower
defaults.
The scheme will be voluntary and subject to eligibility
criteria to ensure that there is proper risk sharing between Government, lenders
and borrowers and the scheme is sustainable for those that participate. To
qualify, borrowers will:
- have suffered a loss of income from employment or self-employment of a
scale which now makes full mortgage payments difficult, but which is not
expected to be a permanent loss of income;
- have been in dialogue with their lender, including over the use of
existing forbearance policies, and have been making some level of regular
payment;
- have taken out a mortgage of up to £400k;
- have savings below £16,000, (which is the same as for the existing Support
for Mortgage Interest scheme (SMI));
- apply for assistance as owner-occupier – the programme will not apply to
people with second homes or buy-to-let properties;
- not be in receipt of SMI or mortgage rescue assistance;
- have been assessed as being able to pay a certain monthly amount on an
ongoing basis;
- have received financial advice from a party other than their lender to
determine their eligibility for the scheme, including testing the long-term
sustainability of their financial position, and their ability to resume full
payments once their income increases; and
- have fallen into arrears for a number of months during which the lender
has exercised forbearance.
The scheme itself will be open for a window of two years,
subject to review. The guarantee will last for a maximum time period and will
expire once the customer is able to commence normal payments. If, during the
period of guarantee, the customer defaults, the Government will pay the lender
the equivalent sum of the total amount of the interest guaranteed that is not
recoverable from equity in the property.
The Department for Communities and Local Government and HM
Treasury continue to work closely with industry and consumer groups on some of
the practical aspects of implementation.
Notes
1.
The Homeowner Mortgage Support Scheme was
announced on 3 December and is one of a number of measures the Government has
announced
2.
The 8 largest lenders covering 70% of the mortgage
market – HBOS, Nationwide, Abbey, Lloyds TSB, Northern Rock, Barclays, RBS,
HSBC – have agreed in principle to support the new scheme.
3.
This scheme is in addition to recent measures
announced in the PBR to help homeowners which include:
- Agreement with major lenders to wait
at least three months before initiating repossession proceedings, in order to
explore all other alternatives.
- Bringing forward the Government's £200 million Mortgage Rescue scheme to
start early in over 50 local authority areas.
- Enhancing the Mortgage Rescue scheme
to cover vulnerable families at risk of repossession because of additional
loans secured on their home.
- Announcing a further £15.85 million to
extend free debt advice to be made available to all consumers across the
country.
- Increasing the support available for
those eligible households paying the interest on their mortgages.
4.
This follows action Government has taken to
support households in recent months, including:
- A new mortgage pre-action protocol, introduced by the Civil Justice
Council, which came into effect last week. The new protocol makes clear that
repossessions should be a last resort.
- The DWP is reforming Income Support
for Mortgage Interest (SMI), by shortening the waiting period before SMI is
paid from 39 weeks to 13 weeks for new working age claims. This will come into
effect from 5 January 2009.
- Expanded free legal representation in
county courts for households at risk of repossession.
- A £10 million package to increase the
provision of legal and debt services already in place to offer advice to
households in difficult financial circumstances.
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