Could you defer your mortgage payments?
Homeowners struggling to meet their mortgage debt could be offered lower monthly repayments as part of a new government and banking initiative.
The Homeowners Mortgage Support (HMS) scheme is being offered by 10 banking groups and building societies, with other institutions lined up to join the scheme soon.
The scheme means that borrowers who suffer a temporary loss of income could cut their mortgage interest payments by up to 70% for up to two years.
The roll-out of HMS comes amid rising repossessions and levels of arrears among borrowers, with many struggling to cope after losing their jobs. The Council of Mortgage Lenders (CML) currently forecasts 75,000 repossessions this year with as many as 500,000 mortgages in arrears of three months or more by the end of 2009.
Margaret Beckett, the housing minister, says: "We know that many families are worried about how to pay the mortgage right now, and we're determined to ensure there is real help available for them. The clear message to borrowers is to contact your lender straight away if you're concerned about how to pay the mortgage as often a solution can be found."
The government is keen to stress that HMS is not a payment holiday and does not allow people to dodge their debt. Instead, it provides borrowers with breathing space, with interest payments deferred for up to two years.
Michael Coogan, director general of the CML, says that, for lenders, repossession is a last resort.
However, he admits that it is not yet clear what impact the HMS scheme will have: “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.”
Lenders taking part
Lloyds Banking Group (which includes Halifax and Bank of Scotland), Northern Rock, the Royal Bank of Scotland (which includes NatWest and Ulster Bank), Bradford & Bingley, Cumberland Building Society, and the National Australia Bank Group (which includes Clydesdale and Yorkshire Bank) have all confirmed their full participation in the scheme and will offer HMS from today (21 April).
Barclays (including First Plus), HSBC, Nationwide and Santander (including Abbey and Alliance & Leicester) have all confirmed they will offer comparable arrangements to HMS to their customers, but will not take up the government scheme.
This means that customers should receive a similar level of support as people with banks offering HMS.
Bank of Ireland (which includes Bristol & West), GMAC, GE Money, Kensington Mortgages, the Post Office and Standard Life Bank, meanwhile, have confirmed they will offer customers HMS as soon as possible.
“Lenders fully recognise their responsibility to keep people in their homes where repossession can be avoided,” says Coogan. “The fact that some lenders are utilising the new scheme and others are not indicates simply a difference in their approach to forbearance, not in their commitment to it."
Who is eligible?
* Your lender must be a participant in the HMS scheme (see above).
* You have suffered a temporary loss of income. For example, you or your partner may have been made redundant, have had your hours cut or are no longer able to work overtime.
* You have no insurance policies in place protecting your mortgage payments.
Who isn’t eligible?
* If you own more than one home.
* If your income is unlikely to return to its previous level. For example, you might have a long-term illness preventing your from working.
* If you have insurance in place that protects your mortgage payments.
* If you would still be unable to keep up with repayments even if they were reduced.
* If you are claiming Jobseeker's Allowance - in this case you can claim support for mortgage interest instead.
How the scheme works
If you qualify for HMS, then the first step is to contact your lender and explain your situation clearly. In most cases you will then be referred to an independent money adviser, such as the Consumer Credit Counselling Service, to discuss your situation further. It will also explain how HMS works, outlining the risks as well as the benefits.
If you and your lender agree that you are suitable for HMS then you can expect the following help:
* Renegotiated monthly repayments. You and your lender will agree how much you can realistically afford to pay back each month. Under the scheme, you must be able to pay at least 30% of the interest due on your mortgage each month.
* After 12 months, you are required to meet with your lender to review your circumstances.
* You will benefit from lower monthly repayments for up to two years or until your situation changes. If your income does change during this time, then you must inform your lender. If your income returns to previous levels you are likely to no longer be offered HMS.
* After two years (or if your situation changes) the interest payments you have deferred over the period will be added to your mortgage balance. You will, therefore, have to repay back this money, with interest. How you pay this back, and over what timeframe, will be decided between you and your lender. However, bear in mind that your monthly repayments are likely to increase.
While HMS allows you reduced monthly mortgage interest payments for up to two years, this scheme does not allow you to avoid paying this money back altogether. After two years (or if you are no longer eligible for HMS) you will be required to pay back the interest payments missed.
Your lender will add this to your total mortgage debt, and this will attract interest as your overall mortgage rate. It will be up to your lender how your monthly payments will change as a result.
Teresa Perchard, director of public policy at Citizens Advice, warns homeowners to explore other options before HMS because the risk of delaying their debt might not be right for them.
“It is vital that anyone who has experienced a reduction in income speak to their lender straight away,” she adds. “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.”
A homeowner’s worst nightmare; repossession is an action of last resort by mortgage lenders to recover money from borrowers that have failed to keep up with repayments on their mortgage or other loan secured on their home (see secured loan). Repossession is a legal procedure that has to go through several processes before the homeowner is evicted and the property reposed. These are: if a borrower keeps defaulting; the lender applies for a solicitor’s notice; the lender instigates possession proceedings through the court; at the court hearing a possession order is granted and sometimes a possession warrant; a bailiff is appointed and an eviction notice issued at which point the homeowner has two to three weeks to vacate the property.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.