The Prime Minister’s latest attempt to hold back repossessions will see £1bn to guarantee mortgage interest repayments for people who suffer “sudden and temporary loss of income”.
It will cover mortgages up to £400,000 for as much as two years as long as the borrower has less than £16,000 in savings. The eight biggest high-street banks have agreed to the scheme. The banks taking part are: HBOS, Lloyds TSB, Abbey, Northern Rock, HSBC, Barclays, Nationwide and RBS.
But there is confusion over details of the plans. Housing minister Margaret Beckett told BBC Radio Five that only 9,000 people would benefit from the scheme but has since retracted that figure.
AMI director of policy Andrew Strange believes that the scheme may exacerbate problems.
He says: “Capitalising two years’ deferred mortgage payments could significantly add to a borrower’s overall debt which, combined with falling property prices, raises the question of negative equity.”
The Council of Mortgage Lenders says the scheme is “not a charter for ‘won’t pay’ borrowers to avoid their responsibilities but it will help those customers who ‘can’t pay’ due to a change in circumstances”.
Brentchase Financial managing director Mike Fitzgerald says: “If you have a fire, you have to put it out. The trouble is that you might end up flooding the place. The Government is between a rock and a hard place right now.”
The National Association of Landlords has called for landlords to be covered by the scheme if tenants become unemployed. There is also concern over whether the scheme will include self-cert mortgages.