Homeowner Mortgage Support Scheme launched
Tuesday, 21 April 2009 4:41 PM
Today the government launched the Homeowner Mortgage Support scheme (HMS), in a bid to help those who could face repossession.
Sarah Garrod looks into whether the scheme will really aid those at risk of losing their homes.
The scheme will aim to support borrowers who are struggling, perhaps through redundancy, to make payments on their mortgage, by reducing the interest they are required to pay for up to two years.
The scheme was officially launched by housing minister Margaret Beckett today, and will be available throughout the UK.
So what is the HMS?
The department for Communities and Local Government claims the scheme will "enable eligible borrowers who suffer a temporary loss of income to cut their mortgage interest payments for up to two years to help them get back on track with their finances".
Repayments will be reduced to 30 per cent of the interest owed, and will be available from a number of high street banks, who will be protected by a government guarantee.
Ms Beckett was at pains to make it clear HMS does not offer a 'payment holiday', and the total amount owed will eventually have to be paid back.
Which banks will be offering the scheme?
From today, the following high street lenders, who will offer their customers HMS, are:
Lloyds Bank Group (which includes Halifax and Bank of Scotland)
Northern Rock
The Royal Bank of Scotland (which includes NatWest and Ulster Bank)
Bradford and Bingley
Cumberland Building Society
National Australia Bank Group (which includes Clydesdale and Yorkshire Bank)
Bank of Ireland (which includes Bristol and West), GMAC, GE Money, Kensington Mortgages, the Post Office and Standard Life Bank, have all confirmed they will be joining HMS as soon as possible.
Barclays (including First Plus), HSBC, Nationwide and Santander (including Abbey and Alliance & Leicester) have all confirmed today they will offer comparable arrangements to HMS to their customers, while opting not to take up the government guarantee.
Who will be eligible for the scheme?
There are a number of criteria which must be met before a borrower is eligible for the scheme. Firstly, they must have bought their home before December 1st 2008, and be an owner-occupier, as the scheme is not open to buy-to-let/investment property.
The borrower must have an outstanding mortgage of less than £400,000 and savings of less than £16,000.
A criticism of the HMS is that the household must have a regular income and be able to make a minimum contribution of 30 per cent of the total interest paid; meaning the scheme may only be useful when one partner in a two person income household loses their job.
They must also have talked through the options with their lender and have been making regular payments for at least five months, as well as having sought independent money advice.
What they say.
Housing minister Margaret Beckett says: "Today's news is a result of excellent co-operation between government, lenders, and money advice services.
"On top of the range of measures we've already put in place, this new support will help borrowers who just need a bit more time to get themselves back on their feet."
Dan Watkins, managing director of mortgages, Lloyds Banking Group (one of the banks now offering the scheme), says: "We already do everything we can to help customers facing financial difficulty and this newest scheme will act as an extension to the broad assistance we offer customers who are struggling to pay their mortgage.
"Most importantly the scheme will offer welcome additional support to families that have suffered a temporary loss of income to ensure they can stay in their homes."
Citizens Advice director of public policy, Teresa Perchard, says: "People will need to explore many more options before this. It is vital that anyone who is has experienced a reduction in income speak to their lender straight away.
"All lenders should provide an understanding and constructive response and help their customers come to a manageable solution, taking into account the customers circumstances and ability to repay their debts and this scheme requires borrowers to have stuck to an agreed repayment plan before being considered."
Royal Institution of Chartered Surveyors (Rics), director of external affairs, Gillian Charlesworth, says: "Steps to help families stay in their homes and avoid the trauma of repossession are essential given the current state of the housing market and the prospect of a further sharp rise in the level of unemployment.
"If these schemes are effective then there is a good chance that repossession levels will be lower than those predicted by many in the industry.
"Although the impact of the HMS may be reduced by the decision of some of the major lenders not to sign up, it is encouraging that a number of lenders who have provided finance to the more vulnerable parts of the community are planning to participate in the scheme."
Council of Mortgage Lenders (CML) director general Michael Coogan, says: "It is likely to be some months before it will be possible to assess the impact of the various industry and government measures.
"The CML expects to be able to update its forecasts on arrears and repossessions, taking into account these measures as well as the prospects for employment and the wider economy, over the summer. Current forecasts are for 75,000 repossessions this year and 500,000 mortgages in arrears of three months or more at the end of the year."
The British Bankers' Association's executive director for retail, Eric Leenders, says: "Responsible homeowners should feel confident that every action is being taken to ensure they can remain in their homes while their finances are restored.
"Homeowners should remember that repossession is always absolutely the last option for banks: repossession rates by high street banks remain significantly lower than those of other lenders."
Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA), says: "There is a fairly complex set of requirements and many borrowers won't be eligible or it may not be suitable for their individual circumstances.
"It is unlikely to be an all purpose panacea for home owners who are struggling, but the fact remains that lenders are already providing substantial support and flexibility to help people stay in their homes. Repossession is an unwelcome outcome for lenders and they do everything in their power to avoid it."
Peter Bolton King, chief executive of the National Association of Estate Agents (NAEA), says: "This scheme has taken months to come to fruition since it was announced last November and thousands of people have had their homes repossessed in the meantime. It is a scheme which is to be welcomed for the support it will give to homeowners."
Which? chief executive, Peter Vicary-Smith, says: "Lenders must do all they can to ensure that repossessing someone's home is an absolute last resort. This scheme is a great step forward and offers much needed protection for people who find themselves in financial difficulty."
Paul Broadhead, head of mortgage policy at the BSA, says: "Borrowers should have every confidence that, if they are a customer of a building society, the Customer Commitment means they will receive at least as much help as is available under the HMS.
"This further confirms the building society sector's commitment to borrowers in difficulty."
Ian Potter, operations manager of the Association of Residential lettings Agents (ARLA), said: "The chancellor has not yet acknowledged the tenants who are facing homelessness as a result of their landlords defaulting on mortgage payments.
"We don't expect the government to subsidise investor landlords through any support packages but we do expect that tenants be taken into consideration in any new measures introduced at this time."
Housing and finance solicitor and Centre for Policy Studies author Natalie Elphicke, says: "The HMS scheme will in practice lead to an increase in the number of families facing repossession because, if banks and building societies are to get their guaranteed payout, they have to repossess within four years if the family is still in arrears.
"Banks, building societies and debt advisory charities are all set to receive a substantial windfall and taxpayers and the vulnerable families whom the HMS scheme claims to help will both lose.
"Why won't families benefit? Firstly, not a penny of their mortgage gets paid for them by the government at any time. The HMS families will pay less on their mortgage each month while they are in the HMS scheme but they will end up paying more overall as the money they have not paid each month will be added on to their mortgage.
"The mortgage will be rescheduled to take account of this catch up money so a HMS family can expect to pay more each month when they come out the HMS than before they went into it."
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