Interest payments may be deferred for up to two years
By Andrew Grice, Political editor
Thursday, 4 December 2008
A scheme to prevent middle classes having their homes repossessed in the recession has been announced in a surprise move by Gordon Brown.
People with a mortgage of up to £400,000 and savings of less than about £16,000 will be able to defer interest payments on their mortgages for up to two years if they suffer a significant loss of income such as losing a job or overtime payments during the downturn.
The Government will guarantee the deferred interest payments under a deal reached with eight banks responsible for seven out of 10 mortgages. People on repayment mortgages will also be encouraged to switch to interest-only mortgages. As well as wanting to keep people in their own homes, ministers are worried that fear of repossession is harming confidence and economic activity. The Council of Mortgage Lenders says the number of repossessions will rise from about 45,000 this year to 75,000 next year, close to the peak reached in the recession of the early Nineties.
The Government's potential liability for the Homeowner Mortgage Support Scheme is £1bn but the actual cost should be £100m as most of the interest payments will eventually be made. Existing help with mortgages is targeted at jobless people who have a mortgage of up to £200,000. The extra help may encourage people who lose their jobs to take a lower-paid job rather than rely on state benefits.
Mr Brown told the Commons debate on the Queen's Speech: "Hard-working households that experience a redundancy or severe loss of income as a result of the downturn will be able to defer a proportion of their interest payments for up to two years as they get their family finances back on track."
He said the Government would do "everything in our power" to ensure that "no hard-working family who demonstrates to their bank a willingness to pay" faced the threat of repossession. Other planks of the strategy include free debt advice at court and an instruction to judges that repossession should be a "last resort".
Alistair Darling, the Chancellor, added: "This is real help for homeowners at risk of repossession through no fault of their own. The scheme will give people who face a temporary fall in their income the confidence that they need to rearrange their finances so they can come through a difficult period without losing their home."
Officials said the scheme would provide breathing space for many families and would operate from the new year. Details are still being worked out with the banks, some of whom said they supported the measure in principle.
Customers of HBOS, Abbey, Nationwide, Lloyds TSB, Northern Rock, Barclays, Royal Bank of Scotland and HSBC will be able to negotiate deferrals of up to 100 per cent of their interest payments. The Government hopes other banks will join the programme.
Opposition parties welcomed the move but said it was more important to persuade the banks to start lending to small businesses and householders.
Vince Cable, the Liberal Democrats' Treasury spokesman, said the last announcement on repossessions only helped one in 10 families. "Ministers must explain who is eligible for this new scheme and how the Government will deal with the legal problems which have created the potential for repossessions to go ahead without recourse to the courts."
George Osborne, the shadow Chancellor, said: "As always with Gordon Brown, don't just look at the headline, look at the detail." The Tories claimed two banks – Lloyds TSB and HBOS – had not yet agreed to the small print.
A Lloyds TSB spokesman, Stephen Pegge, said the plan was "welcome" as part of range of measures to help homeowners but confirmed it had not seen the details yet. "We want to work with the Government to make sure this will really work," he said.
John McFall, the Labour chairman of the Treasury Select Committee, said the scheme was a "good initiative" but said: "This is not going to be a panacea for the housing market."
The government-owned lenders Northern Rock and Bradford & Bingley joined Lloyds TSB in agreeing that repossession proceedings would not begin until households were six months behind on their payments. Mr Brown urged other "responsible banks" to follow their lead.
Get smart: Mandelson’s vision
Labour will have to deliver “smart government” as the British economy emerges from the recession with a smaller financial and retail sector, Lord Mandelson said last night.
Giving the annual Hugo Young lecture, the Business Secretary argued that New Labour would need to revise its view on the relationship between the market and the state amid calls for greater regulation.
The answer was not to bring back “big government” but to pursue “smart government” and market-driven industrial activism. That meant working with the market to shape networks and institutions rather than the Government trying “to run everything”. “As much as we admire the resilience of the British shopper, we all recognise that consumer spending is going to have to be driven less by debt and the British retail sector may also account for a smaller share of the economy ? public service employment is also not going to grow at recent rates.”
Lord Mandelson suggested it would be in Britain’s interests to accept greater European Union integration: “It will force us to adapt to the idea of greater global or European governance, not least of financial globalisation.” The Government still aimed to join the euro but he suggested it would not try to fast-track membership.
Asked if the Government’s five tests had now been met, he replied: “Good question.”
Source:http://www.independent.co.uk/news/uk...s-1050577.html
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