Following my blog on the Homeowner Mortgage Support Scheme ("HMSS") on 20th January 2009, the Government have now published the final design of the scheme.
The scheme confirms the eligibility criteria and sets out the risk sharing arrangements that will be put into place.
Briefly the eligibility criteria are as follows:
- Borrowers must provide evidence that they have suffered a temporary loss of income from employment or self-employment which will affect the household's ability to meet the mortgage payments;
- They must have been making regular mortgage payments for a period of at least 5 months (even if that is a reduced payment agreed previously with the lender);
- The lender and borrower must have discussed other options and exhausted any appropriate ones;
- The borrower must have received independent advice from an accredited debt advisor;
- The borrower must have been assessed as being capable of paying at least 30% of the total monthly interest payment and must continue to pay as much as they can with this as the minimum amount;
- The outstanding charges on the borrower's property must be no more than £400,000;
- The borrower must not have savings in excess of £16,000;
- The borrower must be an owner occupier with the property being their main residence;
- The borrower must have purchased the property before 1st December 2008;
- The borrower must not be eligible for Support for Mortgage Interest;
- The borrower must have been placed on interest only terms;
- The scheme will apply where there is a second charge also affecting the property provided that all lenders enter into the scheme.
At the end of the day however, the final decision on whether a borrower can enter the scheme will lie with the lender.
The intention is that the scheme will run for a period of 2 years and the lender is required to review the borrower's eligibility to remain on the scheme after a year. If during the period of the scheme the borrower's circumstances change, the borrower will be required to keep the lender informed.
The Government will guarantee 80% of the total interest that is rolled up into principal. If during the period of the guarantee (which is to last for 4 years after the borrower comes of the scheme) the borrower defaults, the Government will pay the lender the equivalent sum of the total amount of the guaranteed interest that is not recoverable from the equity of the property. The Government will only accept a claim under the guarantee where the property has been repossessed and sold.
It is clear from the details announced that the scheme is to be an "if all else fails" option. It is intended to assist borrowers and reduce the number of repossessions and hopefully, the majority of borrowers will be able to resolve their "temporary loss of income" whilst on the scheme. The fact that the guarantee will only become effective once a property has been repossessed and sold however, will impact on the number of repossessions although with the guarantee period of four years after exiting the scheme this will probably be difficult to calculate.
The Government plans to make the scheme available to householders in April and will publish further details as and when they are available.
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