Commenting on the Governments statement, Richard Mason, managing director at Moneyextra.com says: “Struggling homeowners need to look beyond the hype and be wary of burying their heads in the sand; this scheme is not a get out of jail free card, and arrears will still need to be repaid. While the Homeowner Mortgage Support (HMS) scheme may seem like a blessing in disguise, its long-term effect is likely to outweigh any short-term benefit, and homeowners need to carefully consider their long-term financial position before taking this route.
Mason adds: “The Government, whilst well-intentioned, is in danger of lulling borrowers into a false sense of security and consequently delaying them from taking positive steps to resolve their financial difficulties. I urge homeowners to exercise caution and be wary of cure-all schemes that offer short-term benefits at the expense of long-term savings.
Mason continues: “Despite rising property prices and an increase of 20 per cent in available mortgage products, the HMS scheme represents a false economy and is merely delaying the inevitable. Homeowners are likely to find themselves burdened with higher repayments in two years than they would otherwise be facing now, thereby eradicating any initial savings garnered. My advice to debt-ridden homeowners is to seek expert advice in the first instance and consider downsizing if re-mortgaging is not an option.
Mason’s view is that downsizing on your own terms can help prevent repossession and being hit by a triple whammy of financial grief.
Debt triple whammy:
Whammy number one;
When houses are repossessed, lenders have little to no intention of making a profit and in many cases will sell your house at a price that covers the loan outstanding, which is typically 10 - 15 per cent less its worth.
Whammy number two;
Lenders will aim to complete a sale within three months – meaning the property is marketed aggressively through estate agents. Combined with hefty legal costs, the overall return diminishes and you could even find yourself in debt after your house has been repossessed and sold.
Whammy number three;
Finally, during the period when the house is on the market homeowners’ debts are set to rise leaving you out of home and further in the red.
Mason recommends: “If you are in debt with no end in sight you are best to arrange the sale on your own terms, before the debt gets out of hand. Three immediate steps to take would be: to speak to your bank and find out what your options are; speak to local estate agents for an accurate valuation of your house; and research what the available mortgage products on the market are at the moment, there are a fifth more schemes available now than there were in early March. Finally, going online to comparison sites can enable you to have a vast amount of information at your finger tips. Regardless, you should always seek expert financial advice before making any decision.”