Page last updated at 20:40 GMT, Wednesday, 10 December 2008

Mortgage rescue details announced

For Sale and To Rent signs
There have been criticisms that the deal doesn't go far enough

More details of the government's new homeowner mortgage support scheme have been announced by the Treasury.

Homeowners who suffer a big drop in income, and meet numerous criteria, will be able to defer their mortgage interest payments for up to two years.

The scheme, which may help only about 9,000 homeowners, will be voluntary for lenders, though the eight largest are supporting it "in principle".

No start date has been fixed, but the scheme should begin next year.

The idea was first unveiled by Gordon Brown on 3 December.

The Treasury said some of the practical details were still being worked out.

"The new scheme will provide a bridge, giving homeowners who are experiencing financial problems sufficient time to find new employment or recover income, without the added concern and stress of potentially losing their home in the interim," said a spokesman.

Initiatives

The plan follows a series of other initiatives which the government has been bringing forward to stem the rising tide of repossessions of people who can no longer afford their mortgage repayments.

The government has been warned that if it does nothing then repossessions may reach 75,000 next year.

The advantage of the new scheme for anyone eligible is that they will be able to stop repaying interest for two years.

However that unpaid interest will be added to the amount they owe, and will then have to be repaid once the borrower can afford to re-start their payments, or when the two-year deferment period has ended - whichever comes first.

If the borrower finds they still cannot afford their mortgage then the government will pay the lender the "equivalent sum of the total amount of the interest guaranteed that is not recoverable from equity in the property."

Criteria

The main qualifications are that someone should:

• have suffered a loss of income from employment or self-employment of a scale which now makes full mortgage payments difficult, but which is not expected to be a permanent loss of income

• have been in dialogue with their lender, including over the use of existing forbearance policies, and have been making some level of regular payment

• have taken out a mortgage of up to 400,000

• have savings below 16,000

• apply for assistance as owner-occupier - the programme will not apply to people with second homes or buy-to-let properties

• not be in receipt of support for mortgage interest or mortgage rescue assistance

• have been assessed as being able to pay a certain monthly amount on an ongoing basis

• have received financial advice from a party other than their lender to determine their eligibility for the scheme, including testing the long-term sustainability of their financial position, and their ability to resume full payments once their income increases and

• have fallen into arrears for a number of months during which the lender has exercised forbearance.

Louise Cuming, of the comparison website moneysupermarket.com, said the plan was disappointing.

"This scheme is virtually worthless and will benefit very, very few homeowners who may be struggling," she said.

"The list of criteria that must be fulfilled before borrowers are even considered means that few will qualify and even fewer will actually be granted assistance due to the fact it is voluntary on behalf of the lenders, who have only signed up "in principle".



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