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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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Article Published/Sorted/Amended on Scopulus 2008-12-13 13:47:25 in Economic Articles

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