Action to help householders announced
Wednesday, 3 December 2008 12:00 AM
Gordon Brown has promised "action to help struggling homeowners", in the debate after the Queen's Speech.
"Hardworking households that experience a redundancy or significant loss of income as a result of the downturn will be able to defer a proportion of their interest payments for up to two years while they get their family finances back on track," the prime minister said.
The UK's eight largest lenders have signed up to the scheme.
It is thought the plan will cover mortgages up to £400,000 and a full explanation is expected from the Treasury in the coming days.
The Guarantee and Bank Forbearance Scheme will guarantee to pay the interest payments of mortgages that are over six months in arrears for up to two years.
Those facing repayment problems will be able to restructure their mortgages and defer interest repayments - rolling over the deferred repayments into the principle of the loan - with the Treasury guaranteeing balances to minimise risk for banks.
Mr Brown said this was in addition to existing measures, such as reducing the waiting time before income support for mortgage interest (ISMI) could be earned, the £200 million Mortgage Rescue scheme to aid 6,000 vulnerable households avoid repossession through local authorities taking a slice of the equity of a property, ensuring mortgage repayments are cut.
The Council of Mortgage Lenders (CML) has welcomed the home guarantee scheme, but warned it will not be for all borrowers.
"It is not a charter for 'won't pay' borrowers to avoid their responsibilities, but it will provide welcome reassurance to the vast majority of borrowers that the government and lenders are doing all they can, in partnership, to help those customers who 'can't pay' due to a change in circumstances as we enter a recession," a CML spokesperson said.
CML director general Michael Coogan said more work was needed for the scheme.
"The government's recognition that it needs to offer increased support to help keep more people in their homes is welcome, and we will work with ministers to make sure the suggested scheme will help in practice," he said.
He also called for a widening of ISMI and wider ranging mortgage rescue proposals.
"We await further information on the proposed guarantee, as the devil will be in the detail," he said.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics), said: "With the threat of repossession likely to rise significantly over the next year as unemployment rises, measures such as today's announcement to provide government guarantees for mortgage interest payments are absolutely vital.
"Giving people a six month buffer before repossession proceedings start and an interest payment holiday for up to two years should help prevent the serious distress caused when people are put in a position where they have to sell their homes. By limiting the amount of distressed selling, it will also restrict the amount of new property flooding the market and which in turn would provide some measure of support."
Newsletter sign up