It certainly can't be said that the Government are sitting back during this period of economic crisis waiting to see if things get better. It seems that with every week that passes an announcement is made detailing (albeit briefly) the latest package that the Government has devised in a bid to rescue the banking sector and kick-start the home loans market. One does wonder however just how effective some of these measures are going to be.
I have been closely watching the development of the Homeowner Mortgage Support Scheme ("HMSS"). Announced in early December it was heralded by the Government as "a real help for homeowners at risk of repossession through no fault of their own". HMSS is intended to give some degree of reassurance to those borrowers that are facing redundancy and consequently the risk of repossession in these difficult times. However, the qualifying criteria of the scheme will limit the number of borrowers who will really have the opportunity to the take advantage of it and it may not therefore be as valuable as may have first been thought.
HMSS will be available to a household where it has suffered a "significant and temporary loss of income as a result of the economic downturn". It is accessible for mortgages of up to £400,000 provided that the borrower does not have savings of over £16,000. It also requires that the borrower has been in dialogue with the lender about their financial circumstances and has sought advice from a third party such as the Citizens Advice Bureau ("CAB"). Finally it confirms that the borrower must have been in arrears for a number of months. A borrower that satisfies these criteria can apply for a deferment of the mortgage interest due for a period of up to two years. At the end of the period the deferred interest is added to the capital owed.
Although it has met with some support by charities such as the CAB and by the mortgage sector itself, there are some concerns. The main concern is that the scheme is only a deferment of the interest due and could therefore be simply postponing the problem as the borrower will then be required to make higher payments (if the interest rates do not reduce during the period) as they need to cover the increased capital sum.
Additionally, the Council of Mortgage Lenders ("CML") has said the scheme would only assist borrowers who are 5 months or more in arrears. This is out of line with the bank rules which allow them to commence repossession proceedings when a borrower is 3 months in arrears.
A further concern, which is in some respects more important, is that the scheme could actually stifle the new mortgage market. Lenders are required to comply with what are known as "capital adequacy rules". These confirm that a Lender is required to hold more capital for loans that are in arrears than for new loans. CML have therefore estimated that up to 80 new borrowers could be denied mortgage funding for every borrower that is helped by HMSS. This is obviously an unintended consequence of the scheme.
How useful HMSS will prove to be remains to be seen. It is thought that HMSS could help up to 9,000 households but with CML anticipating that as many as 75,000 homeowners could face repossession this year this is a drop in the ocean. In spite of any concerns however, the advice from all sectors is the same. If you are experiencing any difficulty in paying your mortgage payments you must speak to your lender without delay and if necessary speak with a charity such as the CAB.
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