CML warns over ISMI cuts
Share
The Council of Mortgage Lenders has called on the Government to reassure homeowners by maintaining support for income support for mortgage interest and mortgage rescue.
Chancellor George Osborne announced, in his first Budget speech earlier this month, that ISMI, which provides support for borrowers in most difficulty, would be paid at the level of the Bank of England’s average mortgage rate. It is currently 3.67 per cent, which is significantly lower than the existing rate of 6.08 per cent.
The CML says the change is likely to come into effect in October after the Department for Work and Pensions has agreed changes with the social security committee and new regulations have been drawn up.
The trade body says it was unsurprised that the ISMI rate was dropped as the Government promised massive cuts to meet the UK’s deficit obligations, but warns borrowers will suffer.
In its fortnightly newsletter, News & Views, the CML says: “An early commitment to maintaining Government support for ISMI and mortgage rescue would re-assure current – and future – home-owners and lenders alike.”
It adds: “Paying ISMI at a significantly lower rate, as the government now proposes, will put the finances of these households under considerably more pressure. There is therefore a greater risk that arrears will rise again after October, and the performance of loans where the borrower is behind with payments may begin to deteriorate again.
“This could be accentuated over time by base rate increases and a rise in unemployment as a consequence of addressing the fiscal deficit. But we can still avoid a rise in mortgage possessions if borrowers continue to take a responsible approach to payment problems, seek advice on their options at an early stage and communicate with their creditors - often involving several secured and unsecured debts outstanding.”
The CML says, however, that the change to ISMI will not affect its repossession forecast for this year, which it says it will review at the end of the summer. But it does warn that it will take a number of years for repossessions to subside to former levels and that we may have not have seen a peak in repossessions in the current cycle.
It has also suggested mortgage rescue - where the borrower becomes a tenant but continues to occupy the same property - free advice to those in difficulties and low interest rates as possible solutions to help those struggling to pay their mortgages.
If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing
