Homeowners facing repossession or struggling to meet mortgage payments after losing their jobs will receive extra support from the government following Monday’s pre-Budget report.
The government focused its attention on helping existing borrowers in danger of losing their homes rather than first-time buyers who are having difficulty entering the property market.
From April, the government has agreed to cover the monthly interest due on mortgages of up to £200,000 for eligible borrowers who have been out of work for at least 13 weeks and are having difficulty meeting their payments. Previously it only offered support to homeowners with mortgages of £100,000 or less.
The maximum rate of interest the government is willing to pay will remain at 6 per cent despite the recent falls in the base interest rate.
Borrowers who have missed mortgage payments should also be treated more fairly by lenders. The government stressed that home repossession should be the last resort and that lenders should do everything they can to help those struggling with mortgage payments.
The chancellor said major lenders would give borrowers at least three months’ grace before they initiated any repossession procedures. Lenders have also been urged to consider alternative solutions such as restructuring payments, offering payment holidays and adjusting the terms of the mortgage to take account of the borrowers’ personal circumstances.
The government also extended its mortgage rescue scheme, which allows struggling borrowers to sell their homes and rent them back rather than having to move elsewhere. This scheme will now be offered on second charge - or equity release - loans in addition to the main mortgage on the property.
The Council of Mortgage Lenders supported the new measures but felt more would need to be done to help the growing numbers of homeowners who could face redundancy in the next two years.
“Everything announced today is helpful, if modest,” said Michael Coogan, director general of the CML.
Other commentators felt the initiatives would help vulnerable borrowers but would fail to stimulate the deteriorating housing market.
“These are extremely difficult times for the housing and mortgage markets,” said Melanie Bien, director of Savills Private Finance, the mortgage broker. “The two main problems facing the Chancellor are to urgently help those families in danger of having their homes repossessed and to reinvigorate the housing market.”
Property prices have been sliding fast in recent months as mortgage lending has dried up and lenders have demanded larger deposits from new borrowers. It was hoped that the government would offer additional help to new buyers or lay out concrete plans to bring down the cost of mortgages.
The government said it was committed to improving the supply of mortgages, but put off taking any action until next year’s spring Budget.
“There was very little to help new mortgage lending and slow down the fall in property prices,” said Jonathan Cornell, managing director of Hamptons International Mortgages. “There were no decisive measures to push lenders to pass on cheaper rates.”
The government has set up a new lending panel comprised of lenders, trade and consumer bodies, regulators and the Bank of England to monitor and improve lending practises and promote awareness of the type of support available to households.
It also pledged to bring forward £775m of investment to build and regenerate social housing.
Ms Bien said that while house building played a vital part in helping new buyers onto the property ladder, lenders also needed to ease their criteria when it came to lending to first-time buyers.
