Homeowners facing repossession will be able to defer the interest part of their payments for up to two years, Gordon Brown announced today.
The Prime Minister told the House of Commons that the scheme would give people who lose their jobs breathing space from payments without the risk of losing the roof over their head. Eight major banks have signed up to the scheme, but so far it doesn’t include any sub-prime lenders who are often quickest to repossess.
The scheme guarantees to pay the interest payments of certainmortgages that are over six months in arrears for up to two years.
The chancellor Alistair Darling says: "This is real help for homeowners at risk of repossession through no fault of their own. The scheme will give people who face a temporary fall in their income the confidence that they need to rearrange their finances so they can come through a difficult period without losing their home."
Darling adds that the government will work with lenders over the coming days to develop the scheme in detail, with a view to it being available to customers early in the new year.
Joy Griffiths, managing director of mortgages at Lloyds TSB, says: "It is always our priority to do all we can to help homeowners in financial difficulty. We welcome the announcement today and will continue working with the government as the details of this arrangement are refined, including who is eligible for the scheme."
Michael Coogan, director general of the Council of Mortgage Lenders, says banks and building societies are committed to helping keep people in their homes.
"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 MPs to make sure the suggested scheme will help in practice,” adds. “We await further information on the proposed guarantee, as the devil will be in the detail."
Peter Williams, executive director of the Intermediary Mortgage Lender’s Association, says: “This is a good example of a creative solution being devised by government and the lending industry to mitigate the pain of borrowers in situations where all other avenues have been exhausted and the only alternative would be potentially losing their homes.”
But there are concerns that the scheme only protects people who lose their jobs rather than struggling borrowers at large.
John Fairhurst, managing director of Payplan, says: “The majority of clients that contact Payplan about mortgage arrears have not experienced a loss in income, but simply cannot keep up with their debt repayments.
"Those that come to us facing repossession also owe on average £42,000 in unsecured debt. It is vital that lenders ensure they also have effective policies in place to assist this significantly larger group of struggling borrowers."