Gordon Brown last night threw a mortgage lifeline to those hardest hit by the recession, to ensure that people who lose their jobs will not automatically lose their homes, too.
Gordon Brown last night threw a mortgage lifeline to those hardest hit by the recession, to ensure that people who lose their jobs will not automatically lose their homes, too.
In an unexpected move during the Commons debate on the Queen's Speech, the Prime Minister revealed the UK Government's latest attempt to ease the full effects of the economic downturn: an insurance policy called the Homeowner Mortgage Support Scheme, which will enable those who temporarily lose their income to defer up to 100% of their mortgage interest payments for up to two years. The deferred payments will be added to the outstanding mortgage debt, which borrowers will pay off when their finances improve.
The "mortgage holiday" will cover house loans worth up to £400,000, with the cost being borne by the UK Government.
It is unclear what the overall end-cost might be as it is not known how many people will take up the offer, but the liability to the UK Government could be £1bn as it has guaranteed that lenders will not lose money even if borrowers are later unable to repay the debt.
Ministers and officials plan to work with lenders over the coming days to develop the scheme in detail, with a view to it being operational in the New Year.
The policy is designed to stem the tide of repossessions. By the end of this year, some 45,000 homes are expected to be repossessed and by the end of 2009 it could rise to 75,000, a similar level to the recession of the 1990s.
As the rate of unemployment rises so too will that for repossessions. Some 11,300 people lost their homes in the third quarter of the year, 12% more than in the previous three months.
In the Commons, Mr Brown told MPs: "Hard-working households that experience a redundancy or severe 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 as they get their family finances back on track."
The PM said the measure was in addition to protection for the unemployed, who can claim help to meet interest payments after 13 weeks.
"This measure will extend protection for those in work as well as those out of work and be available at a higher level of income," he said.
Mr Brown added that eight lenders, accounting for 70% of the market, had already agreed to be part of the scheme. These are Halifax Bank of Scotland, Abbey, Nationwide, Lloyds TSB, Northern Rock, Barclays, Royal Bank of Scotland and HSBC. It is hoped smaller lenders will join the scheme.
The move received a broad welcome by charities, trade unions and the mortgage industry.
Adam Sampson from Shelter, the housing charity, said: "This is great news for many thousands of homeowners struggling to keep a roof over their heads this Christmas and the millions more who fear what might happen if they lose their jobs."
Derek Simpson, joint leader of the Unite union, said: "There is nothing more important than keeping a roof over our families' heads and Gordon Brown has shown that he understands this and is prepared to act."
However, the industry body, the Council of Mortgage Lenders, gave a more cautious welcome. It said the scheme would not be for everyone and would need careful development with lenders and itself to ensure it was properly targeted.
It said: "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."
However, opposition politicians urged caution, wanting to know more of the details.
Vince Cable for the Liberal Democrats said: "We must look at the small print. Last time the government made an announcement on repossessions it only ended up helping one in 10 families."
