However, we believe that much broader state support is needed than the new arrangements for income support for mortgage interest due to come in to effect in January. The government estimates that these measures will provide help for around 10,000 households – against our forecast of 170,000 households in arrears of more than three months at the end of 2008.
Ultimately, if borrowers cannot stay as owner-occupiers, there are a number of other options for helping them, including rescue through a publicly-funded scheme.
We are still awaiting final details of the government’s mortgage rescue scheme announced in October. However, the intention is that it will provide a backstop for those vulnerable borrowers at particular risk of homelessness. The government has said the scheme would help up to 6,000 households – and would be targeted at families with children, elderly or disabled people or pregnant women over the next two years.
But with unemployment set to rise to around three million, according to the Confederation of British Industry, and with a risk of rising arrears and possessions in 2009, the government needs to be much more ambitious in the scope and impact of the mortgage rescue plans it is putting into place.
The forthcoming pre-Budget report provides a good opportunity for the government to set out its plans to reinforce the safety net for borrowers facing mortgage payment difficulty if they lose their jobs in the recession.
Developing consistent criteria for those eligible for any mortgage rescue scheme will help ensure effective delivery of the proposals at a local level. A number of stakeholders are involved in developing the current, modest scheme, including lenders, local authorities, housing associations and money advice agencies.
We would expect lenders to have a major role in any new scheme as borrowers in difficulty will be offered a number of options to stay in their home which will need to be negotiated with the lender on a case-by-case basis. Lenders are willing to participate and may be prepared to:
consider a government-backed mortgage rescue scheme as an option for defaulting borrowers as part of standard forbearance policies once all other coping strategies have been exhausted;
consider ‘fast-tracking’ urgent cases if there are clear eligibility criteria;
defer or suspend decisions to start possession proceedings while an assessment of eligibility is considered; and
freeze charges and additional interest while eligibility is being assessed;
A national, government-backed mortgage rescue scheme would mean that for those cases where other options are not available, there would still be a means by which borrowers could remain in their home, even if as a tenant or part-owner.
However, for any scheme to be viable it has to be attractive to borrowers and offer a real and fair alternative to possession – and be a better option than the unregulated sale-and-leaseback deals currently on the market. Could a larger public and private sector solution be the answer? We remain ready to discuss all the options if the government recognises that it needs to play a more ambitious role than previously announced.
