Experts warn that the Government’s move to extend temporary changes to the Support for Mortgage Interest scheme may not be not enough to prevent a surge in repossessions.
Under the comprehensive spending review outlined by Chancellor George Osborne last week, the Government will extend the changes for another year. The scheme works by covering eligible mortgage payments and the interest rate on some home improvement loans for homeowners receiving income-related benefits.
From January 5, 2009, changes to SMI were made on a temporary basis to reduce the waiting period from 39 or 26 weeks to 13 weeks and to raise the limit on eligible mortgages from £100,000 to £200,000. A two-year time limit to receive the payments was also imposed on borrowers claiming Jobseeker’s Allowance. These changes were due to expire on January 5, 2011. But as part of the CSR, the Government has extended the changes to January 4, 2012.
The move will cost the Government £70m in the financial year 2011/2012 and £20m in 2012/2013. The Council of Mortgage Lenders has welcomed the extension, adding that it expects the Government to review the housing market before the changes expire to decide whether the scheme should be extended further.
The trade body says: “This is a reprieve that will come as a relief to those households which, through no fault of their own, lose their income and their ability to meet their mortgage obligations.”
First Action Finance communications head Jonathan Cornell says: “People already receiving SMI will be absolutely delighted that it has been extended. The scheme will also form a safety net for those people who are nervously anticipating losing their jobs.”
He says the Government was right to extend the measures on a temporary basis, or it would run the risk of committing to payments over the longer term, even if the economy had hugely improved.
But Moore Blatch Solicitors head of lender services Paul Walshe says while the extension to the SMI will make a difference for homeowners, an increase in repossessions is still likely, given the scale of the job cuts that lie ahead.
He says: “Undoubtedly, the move will have a positive effect in suppressing a number of repossessions as the SMI has been an important part of the Government’s overall strategy in driving repossession numbers down,” he says. “The difficulty is going to be the sheer number of people that are likely to face redundancy in the public sector.
“The headline figure is half a million public sector job losses and it will be quite a challenge to find an equivalent number of jobs in the private sector. That is what is likely to drive up the number of repossessions.”
Spicerhaart business relationship director Alison Beech agrees that while the extension to the SMI is welcome, repossessions will inevitably rise in line with unemployment.
She says: “The year-long extension of the SMI scheme offers a glimmer of hope for a substantial number of households struggling to meet their mortgage repayments. However, this move will not by itself be enough to halt the likely tide of borrowers at risk of repossession as the public sector spending cuts take their toll on jobs and personal finances.”
Beech says repossession levels may rise further if and when the changes are withdrawn in 2012 and borrowers fall into arrears.