Government’s mortgage holiday plan in focus

10:12am Friday 5th December 2008

Comments (1)   Have your say »

Could mortgage holidays help struggling families save their homes? STEPHEN LEWIS finds out.

HERE is proof of just how worried the recession is making us all feel. In the last six months, the number of people turning to York Citizens Advice Bureau (CAB) for help because they are worried about their jobs has doubled.

At the moment, the CAB is dealing with about two dozen inquiries every week from people who have either lost their jobs or fear they will.

Some have already been made redundant, says CAB debt advisor Kevin Butler. Others have heard rumours about job losses. Still more have had their hours cut.

All, however, face the same fear: how can they pay their bills and their mortgages if they suddenly find themselves out of work or with a drastically reduced income?

Repossession is a frightening possibility.

The Press revealed recently how the number of repossession orders made at York County Court rose by more than a quarter in the first six months of the year, to 206. More than half of those came in April and June.

That upwards trend is likely to have continued in the second half of the year, meaning many families face a real risk of losing their homes.

Gordon Brown’s big answer, announced this week, is to offer homeowners who face repossession a mortgage payments “holiday”.

Under the Homeowner Mortgage Support Scheme, people who experience a temporary fall in income – possibly as a result of someone losing their job or seeing their hours cut – will be able to defer a proportion of the interest payments on their home loan for up to two years.

The deferred payments will be “rolled up” and added to their outstanding mortgage debt – which the borrower will pay off when their finances improve.

It is quite a gamble. Ultimately, if the economy does not pick up, the taxpayer could be left with a bill of about £1 billion, because the Government has guaranteed that lenders will not lose money if borrowers are later unable to repay the debt. The initiative will cover mortgages of up to £400,000.

But how much security does it really give you if you are worried about losing your job, and feel your home could be at risk too?

It is very hard to tell, says Mr Butler. If it really does mean that hard-pressed families struggling to cope on a reduced income can defer their mortgage payments, then it might well help.

“But we need to wait and see,” he said. “The devil is in the detail.”

York mortgage expert Richard Mowbray, of the Mortgage Advice Service, in Skeldergate, agrees.

The scheme appears to have been sprung on banks and lenders, for a start, he says. And while eight lenders, accounting for 70 per cent of UK mortgages, have agreed to take part, he still doubts how much of an impact it will have.

His understanding is that it will be up to lenders whether they agree to allow families to take a mortgage holiday under the scheme. Theoretically, it would enable a family that was really struggling to make no mortgage payments at all for a period of up to two years, Richard said. But of – the payments were “rolled up’ and added on to the end of their mortgage, that could lead to an increased risk of negative equity if house prices keep falling.

Nevertheless, mortgage holidays would at least give families a breathing space.

Richard has doubts, however, about how many lenders will agree to them.

The Government has made big announcements like this before, for example when it said a couple of years ago there would be help for “key workers” such as teachers to get on the housing ladder. In reality, very few people benefited from that, he said.

“And I suspect that when it comes down to the nitty gritty, very few people will be helped by this.”

More significant, at least in terms of getting the housing market moving again, is the latest interest rate cut announced by the Bank of England, down from three per cent to two per cent – the lowest level for 57 years.

There were some signs that the last interest rate cut prompted at least some movement in the market, Richard said. The hope must be that this does the same.

The market will have to start picking up again soon, he said. There are people who need to move home.

They have been putting it off and putting it off as house prices fall – but there will come a point when they can put it off no longer.

“There is a lot of pressure building up in the system. It will be like a cork coming out of a bottle,” he said.

Estate agent David Beattie of Quantum agreed.

“Buyers have not gone away,” he said. “It is their ability to buy that has been taken away.”

What is really needed, he said, is more pressure on lenders to start lending again, without requiring huge deposits.

That would enable first time buyers to start buying – and that in turn would free up the entire housing market.

“We have to encourage banks to lend,” he said.

‘Don’t put your head in the sand’

Mortgage lenders are already expected to bend over backwards to avoid repossessing your home, says Kevin Butler of the York Citizens Advice Bureau (CAB).

“They are expected to look at every avenue to try to avoid repossession,” he said.

The period of grace many lenders will offer before starting repossession hearings was recently extended from three to six months. Mortgage holidays may well provide another option if you are really struggling to make payments, Mr Butler, pictured, says.

If you are in difficulties, the key thing is to face up to it rather than hiding your head in the sand.

Come to an organisation like the CAB foir advice, he said. Or got to see your mortgage lender direct, explain the situation to them, and see what the options are.

These could involve reducing your payments for a while, or paying interest only – or possibly, under the new scheme, taking a payment holiday.

Offer to pay what you can afford – and if necessary, prioritise your debts, Mr Butler said. Youir mortgage or rent should take priority, becausre they are about the roof over your head.

* If you are worried about your job, your mortgage, your rent or unnmanageable debts, phone the CAB for advice. In York, the number is 01904 623648.