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CML responds to government on home-owner mortgage support scheme

CML responds to government on home-owner mortgage support scheme

Wednesday, 14 January 2009 1:22 PM

The Council of Mortgage Lenders (CML) has today responded to the government's consultation on the proposed home-owner mortgage support scheme.

The proposed scheme would enable some borrowers to defer a proportion of their interest payments for up to two years, with the government underwriting a proportion of the lender's ultimate risk of loss.

While recognising the desirability of ensuring any scheme is implemented quickly, the CML has urged the government to undertake a regulatory impact assessment to ensure the scheme fulfils its objectives without unintended consequences.

CML director general Michael Coogan, said: "This scheme is not a payment "holiday" or a "free lunch", but rather a payment deferral. The future impact on borrowers' repayments may be very significant if they defer a high proportion of their interest, and the scheme is not without the risk of potentially unwelcome impacts on lenders.

"However, for eligible borrowers who would otherwise face repossession it may make the difference between keeping or losing their home, while for lenders it makes longer term forbearance a less risky option. If the government can find ways to address the capital treatment of loans within the scheme, and the period and amount of the guarantee for lenders, this would improve its attractiveness and likely level of take-up."

The CML has suggested:

The government guarantee to the lender should cover the total deferred interest accumulated by the borrower and should be in place for up to ten years. This would help to remove the risk of lenders feeling they have to seek repossession shortly after the end of the deferred interest period in order to trigger access to the guarantee, giving the household longer to clear the accumulated arrears built up during the period when they were making only reduced payments.

Concessions regarding the capital treatment of loans accepted into the scheme need to be explored, as the amount of capital that lenders will have to hold against loans within the scheme is a potential barrier to take up,, as well as creating a potential impact on new lending. The amount of capital that a lender has to hold for each mortgage in arrears is between 30 and 80 times that of a new mortgage.