The Government will guarantee the deferred payments in return for full co-operation from the Banks. The deferred interest payments will be rolled up and added to the principal sum which the borrower will pay off when his/her circumstances improve.
The Government hopes to introduce this scheme in early 2009.
Background
During 2008 the Government responded to the difficult housing market conditions with the following measures designed to assist homeowners.
- A new pre-action protocol published by the Council of Mortgage Lenders that sets out clear guidance on the steps lenders are expected to take before commencing a claim in the courts. The protocol aims to ensure that re-possession actions are a last resort.
- The reform of Income Support for Mortgage Interest ("SMI") which means that as from the 5th January 2009 the waiting period before SMI is paid will be reduced from 39 weeks to 13 weeks for new working age claims
- A ten million pound package to increase legal and debt advice services to homeowners in financial difficulties.
In the Pre-Budget Report on the 24th November 2008 the Government took further steps to assist Borrowers having difficulty with mortgage payments by :
- Reaching an agreement with the major lenders that they will wait at least three months before initiating re-possession proceedings.
- Bringing forward the Government's 200 million pound mortgage rescue scheme
- Enhancing the mortgage rescue schemes to cover homeowners who have additional loans secured on their houses.
- Providing a further 15.85 million pounds funding to provide free debt advice to all consumers.
Summary
The Government has now announced a new Homeowner Mortgage Support Scheme which is intended to allow those who suffer a "significant temporary" loss of income to defer part of the interest payments on their mortgage for up to two years
The Government will guarantee the deferred interest payments in return for full co-operation from the banks. The deferred interest payments will be rolled up and added to the principal sum which the borrower will pay off when his/her circumstances improve.
To date the following major Lenders have agreed to participate in the scheme:
- HBOS
- Nationwide Building Society
- Abbey National PLC
- Lloyds TSB
- Northern Rock
- Barclays Bank
- RBS HSBC
The Government intends to work with participating lenders over the next few weeks to develop the scheme in detail. It is hoped the scheme will be available to homeowners early in 2009 although no firm date has yet been given as of the 8th December.
The Chancellor said, "This is a real help for homeowners at risk of re-possession through no fault of their own. The scheme will give people who face a temporary fall in their income the confidence they need to re-arrange their finances so that they can come through a difficult period without losing their home".
Housing Minister Margaret Beckett said, "We are determined to do everything possible to ensure that hard working household have the option to stay in their homes if they suffer a loss of income during the down turn. This scheme will give house holders the breathing space to get back on their feet again and help ensure they do not face or fear re-possession. It shares the risk of home ownership at this difficult time across all the partners - the Government, the Lenders and the borrowers. We want to see all lenders signing up to this scheme as part of their efforts to ensure that re-possession is always an absolute last resort"
The Lenders referred to above who have committed to the scheme cover 70% of the mortgage market.
The deferred payment will be rolled up and added to the principal with the borrowers paying this off when his/her financial circumstances improve maintaining an affordable monthly payment by extending the term of the mortgage.
The Government will guarantee lenders against the loss of deferred interest payments.