Page last updated at 09:10 GMT, Wednesday, 22 April 2009 10:10 UK

Q&A: Help for struggling homeowners

Empty house
Arrears and repossessions saw a big jump in 2008.

The government has brought in several new schemes to help those struggling with mortgage repayments.

The latest one, starting on 21 April 2009, allows some home owners who suffer a sharp drop in income to defer up to 70% of their mortgage interest payments, for up to two years.

The Homeowners Mortgage Support Scheme (HMSS) is being supported mainly by lenders in which the government has a big or controlling stake.

But most of the other lenders say they will follow this lead anyway with their own borrowers who are in trouble.

So what are the new measures?

People made redundant or who face a significant loss of income will be allowed to defer a proportion of interest payments for up to two years.

They will still have to pay back that money eventually, though.

This could help families with one earner who has become redundant, a homeowner who has suffered a significant loss of overtime, or people who have had to take a lower-paid job.

The main limit is a mortgage no larger than £400,000, and savings of no more than £16,000.

The deferred payments will be added on to repayments for the rest of the term, ideally when people are able to find a new job.

The Treasury will underwrite the extra risk taken by lenders.

That means if someone eventually defaults, the government will pay the lender 80% of the missed interest payments.

This plan is in addition to the two other main schemes.

One gives more more income support than before to unemployed homeowners with mortgage interest payments to pay.

And the other, called a mortgage rescue scheme, lets some homeowners who are threatened with repossession be converted into housing association tenants, while staying in their homes.

Will all this halt repossessions?

No, because there will still be people who need to get out of an untenable situation, but the plan could have a significant effect.

Official estimates initially suggested only about 9,000 homes would benefit from HMSS, but the government now says it hopes that tens of thousands will be helped.

Only about 6,000 homes in England are expected to benefit from the mortgage rescue scheme.

There has been a widespread welcome for the latest plan.

Which? chief executive Peter Vicary-Smith said: "This scheme is a great step forward and offers much needed protection for people who find themselves in financial difficulty."

Michael Coogan, of the Council of Mortgage Lenders, said it would be some months before anyone could tell if the new measures were working.

"The government is helping, through changes to income support for mortgage interest, the mortgage rescue scheme, and now the home-owner mortgage support scheme," he said.

"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," he added.

Ray Boulger, of mortgage broker John Charcol, has calculated that deferring interest for the whole two years would see mortgage holders increase their debts by 10%.

If borrowers default later, and the house is sold in a market where prices are falling and may be worth less than the mortgage, the government will not guarantee any such shortfall for the lender.

Is everyone happy about it?


There are people who have been paying for insurance for exactly this type of situation.

Payment protection insurance covers mortgage repayments for those who have lost their job, and many people have been paying these premiums for years.

The insurance companies who provide these schemes are also likely to be hit.

Some taxpayers may also be unhappy that the government is exposing yet more taxpayers' money to the scheme.

What existing help is there for people behind with their payments?

Banks have agreed that repossession must only be a last resort. They should point people to the help available from independent advisers and charities.

Derelict house
The CML has forecast 45,000 repossessions this year

They should also offer payment holidays and consider offers of temporary reductions in repayments.

Nationalised banks like the Northern Rock bank and Bradford & Bingley now wait six months before repossessing homes of mortgage borrowers who fall into arrears.

The banks are copying the example of RBS NatWest, now under majority state control.

Other major lenders have previously agreed to wait three months before starting any repossession proceedings.

Is there any specific financial assistance already available?

There is financial help for people who have lost their job.

People on income support or claiming job seekers allowance (JSA) are able to apply for government money to help repay the interest on their mortgages.

The waiting period for those on income support, or JSA, has been cut from 39 weeks to 13.

The maximum value of the mortgage on which the interest is repaid has gone up to £200,000.

Around 200,000 people are already claiming this benefit, known as Income Support for Mortgage Interest.

The new help is limited to two years for new JSA claimants, on the grounds that they should be able to get a job within that time.

How many homes are repossessed at the moment?

Latest figures from the Council of Mortgage Lenders (CML) have revealed that the number of properties repossessed by mortgage lenders rose in 2008 by 54% to 40,000.

The CML believes the recession will mean produce another 75,000 repossessions this year.

What about the numbers in arrears?

The number of mortgage accounts in arrears rose by 31% in 2008, according to figures from the Financial Services Authority (FSA).

At the end of 2008 there were 377,000 accounts in arrears by 1.5% or more of their loan balance, roughly equivalent to arrears of at least three months.

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