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A consumer&#39s view

It is difficult to point to anything much that this Government has achieved since taking office, except Chancellor Gordon Brown&#39s success in maintaining a balanced Budget – so far. It is this lack of any positive benefit for the average person which is behind voters&#39 increasing disillusionment with Tony Blair and his cronies.

What is difficult to understand is why the Government, when in Opposition, did not put together a list of easily achievable reforms, many of which are long overdue, which would benefit poorer members of society. These could have been implemented as soon as the new administration took office.

The current anomaly with housing benefit, highlighted recently by the Council of Mortgage Lenders, is just such an example of where, with very little effort or extra expense, the Government could make a real difference to the lives of lower-income families.

Social security reforms, which reduced the amount of benefit paid to homebuyers who are unable to meet their mortgage interest payments because of unemployment or sickness, have saved the Government around £700m a year. It was the previous Conservative administration which was responsible for these cutbacks. But researchers for the CML concluded that the benefit reforms are likely to lead to an increase in repossessions should there be any significant rise in unemployment.

This ought to act as a warning signal for homebuyers, their mortgage advisers and the Government. A rise in the number of poorer families being turfed out of their homes is exactly the sort of headline Blair could do without.

Latest CML figures reveal that the annual cost of state help with mortgage interest payments has fallen dramatically from £1.2bn in 1993 to less than £500m in 2000, following the 1995 benefit reforms.

The CML warns that the full impact of the 1995 reforms – the most significant of which extended the waiting period for entitlement to help with mortgage interest commitments to 39 weeks – have yet to be tested by a significant economic downturn.

The Government has been urging lenders to develop cost-effective mortgage payment protection insurance to take over where social security benefits have been cut. Both mortgage lenders and insurers have been very successful in achieving this,and borrowers can now get MPPI cover for sickness and unemployment for as little as £3.50 a month for every £100 a month of payments covered.

The CML research also showed that, in spite of declining state support for borrowers in difficulties, mortgage lenders have developed new procedures for dealing with the problems this creates. Lenders have been more ready to grant loans to older employees and those on fixed-term contracts.

They have also actively promoted MPPI, changed their procedures for recovering arrears and have allowed an extended period for borrowers in difficulties to sort out their financial problems before starting recovery.

But the CML has pointed out that many poorer homeowners may not be able to afford even today&#39s relatively low MPPI premiums and called upon the Government for more help for low-income homebuyers in difficulties.

CML deputy director general Peter Williams makes the point that these homebuyers are not entitled to housing benefit, which is available to tenants, including those in work. He adds that the introduction of a housing tax credit would remove a bias that means that homeowners on low incomes are treated less favourably by the state than tenants.

Williams also points out that, although it is right to put the onus on borrowers to protect themselves, not all events are insurable. Divorce, one of the biggest causes of mortgage arrears and repossessions, is a typical example.

There is nothing inherently more worthy of state help in being a tenant who cannot pay the rent than being a homebuyer who is unable to pay their mortgage because of sickness or unemployment. If state help is available for those on low incomes who rent – even when in work – why are low-income homebuyers any less deserving?

Until such time as the Government gets round to doing something for these homebuying families, perhaps the answer is for lenders to include MPPI cover in the monthly mortgage payments for first-time buyers. If homebuyers did not see the cost of the cover in pounds, they might be persuaded to take out a mortgage which included unemployment and sickness cover as a “free” bonus.


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