Credit Crunch Mortgage Holiday

Off-topic
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Struggling homeowners granted mortgage holiday

By Alex Barker, Jim Pickard and Jane Croft

Published: December 3 2008 15:49 | Last updated: December 3 2008 15:49

Gordon Brown is to grant homeowners in financial difficulty the right to demand a two-year mortgage holiday, guaranteed by taxpayers, in a dramatic bid to underpin the housing market.

The move will put about £1bn of taxpayers’ money at risk in an attempt to stem the rising flood of repossessions as Britain enters recession and unemployment soars.

Offering a lifeline to homeowners is seen by the prime minister’s allies as the “rabbit out of the hat” on a day when the Queen unveiled one of the thinnest programmes of legislation seen in parliament.

The scheme would offer protection to households that are falling behind on mortgage payments when one earner losses their job, falls ill, or suffers a big fall in income.

Lenders have agreed to offer eligible families a holiday on mortgage interest payments that would be guaranteed by the government, meaning losses would be reimbursed if the borrower were unable to resume repayments.

Britain’s eight biggest banks are understood to be supporting the programme. Mr Brown is expected to announce the broad principles to the Commons on Wednesday afternoon.

The scheme, which requires no new primary legislation, represents a gamble with taxpayers’ money on the length and severity of the housing downturn. Officials estimate the measures will amount to a £1bn “contingent liability” but cost about £100m.

Mr Brown expects the scheme to make a big difference to repossession rates by addressing the cycle of fear undermining the housing market. It is likely to allow thousands of families in financial trouble to stay in their homes at least until the next election.

But the offer of support to families living beyond their means may be seen as unfair by borrowers who have planned carefully and made sacrifices to meet their financial obligations.

The state intervention in the housing market may also distort house prices as Britain’s decade long property boom unwinds.

The number of mortgage-holders falling behind on payments or being repossessed is rising at its fastest rate since the last recession. Figures from the Council of Mortgage Lenders show that 1.44 per cent of all mortgage loans were three months or more in arrears – or 168,000 homes – in the third quarter.

The total number of properties repossessed rose to 11,300 in the period, equal to 0.10 per cent of all mortgages – up from 0.09 per cent in the second quarter.

The CML has predicted about 45,000 repossession during the whole of 2008, up from about 30,000 last year. However, this is still below the last peak of 75,540 in 1991, when 350,000 homeowners had fallen behind on mortgage payments by three months or more.

The government recently moved to improve “Income support for mortgage interest” (ISMI), which is the safety net for families who lose all their income and can no longer meet mortgage payments.

From January there will be a cut in the waiting period before ISMI is paid from 39 weeks to 13 weeks, while the capital limit for claims will be increased from £100,000 to £175,000.

Homebuyers can already take out mortgage payment protection insurance but the market is uncompetitive and customers tend to be over-charged, according to a recent report by the Competition Commission.

The report found that most of the UK’s 14m PPI policies are sold at the time a consumer takes out a loan, suggesting that many are unaware that they could shop around for better value.

The commission is consulting on whether it would be appropriate to ban the sale of PPI at the same time as the associated credit product.

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Not sure whether to read this as a good sign, or a bad sign that they’re relying on desparate measures… Sometimes I worry whether the government know something we don’t about how bad this downturn is really going to get…?

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Excellent! Must rush off and borrow more than I can afford to pay back on a house at once! And then I can moan that the repayments are costing me too much, and the Govt can sort it out for me. Another move to encourage and reward irresponsible borrowing. What a great example that sets.

It’s as if they have no idea what started the Credit Crunch/Banking Ballsup in the first place. Or was it only me who thought it was down to irresponsible lending and borrowing?

Me: I haven’t gone out and borrowed 6 times my (self-certificated) salary to get a 125% loan on a “sure-fire” “one-way-bet” on the property market. And, yes, I am feeling a little bitter about it, because it seems the Govt is bending over backwards to help those who have done that, whilst giving no help to people like me who are oddly against borrowing more than they can afford and who are on the long, slow, unrewarding, slog to building up a decent sized deposit so that one day in the dim and distant future I just might be able to buy somewhere.

And I know it must be gutting to have your house repossessed, but think about it: IT WAS NEVER YOUR HOUSE. The bank who gave you the mortgage owned it.

You haven’t lost anything (in fact, if you’ve had a mortgage on a house for more than a couple of years, you’ve probably made a profit on it, even at today’s prices). And even if you do “lose” everything, you’ll only be left with as much as all those who haven’t borrowed irresponsibly have got anyway (i.e. nothing. Your previous mortgage payments effectively become the same as rent payments.) I rent, and that means “my” house can be repossesed at any time (if the landlord gives 3m notice). But the next time my landlord wants to get rid of us, I doubt there will be any 2 year rent free deals courtesy of HM Treasury.

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Fair points, but if you did have your house repossessed, anything that wasnt paid by the sale of the house (e.g. part or all of a second mortgage/in the case of negative equity, or unsecured debt in the case of a Northern Rock ‘together’ mortgage) is often overlooked, so you may end up with continuing to have to repay mortgage debt on top of now having to pay rent…Or you could just declare yourself bankrupt… :smiley:

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Well at least this seems like real measures that will affect real people - ie hopefully stop families from losing their homes. (And in most cases the hard earned equity they have in their homes).

The VAT cut - what was the point of that other than put more pressure on the public purse?

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cant understand why the taxpayer has to keep bailing out people that borrow above their means when we bought our house we had to find a 10% deposit and the lawyers fees before it could happen.

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Thanks. And, as I say, the personal turmoil of having your house reposessed must be awful. But another way of looking at being in negative equity is to say that you borrowed money you didn’t have, to bet on something that you thought was a sure fire bet. And you lost.

Now, if I borrowed several times my annual untaxed salary, and bet it on something, and lost, it would be a good friend or a mad friend that felt sympathy. And if I’d have done it against my wife’s wishes but managed to persuade her it was a good thing to buy a house because they’re always going up in value aren’t they? (of course, our money is shared, so I mean half the money I’d lost would have been hers), then I reckon I’d be in serious trouble.

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I’m finding all of this very confusing.

Because I never borrow more than I can repay and save (a very little) and live within my modest means, I’m going to bail out a wunch of bankers that don’t show judgement?

O.K. Youve lived quietly, worked hard and and life turns to cack through none of your own fault, yup, I don’t have problem with help.

You’ve lived a fat cat life style taking huge income from a money market job, fouled up your company through being suckered and greedy and you want me to bail you and your company out? F.O.

You’ve got large credit card debts you can’t afford to repay so your selling your negative equity house to get out of the sh*t you got yourself into, and you wanty me to bail you out? F.O.

But I don’t get a choice. I’m just the idiot tax payer.

God, I wish I’d pi*ssed all my money up the wall.

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No much to add really. Buying a house is a risky business, and the government haven’t done this in the last ten years when people have had there houses repossessed so why should they start now?

OK some people are going to loose their home through no fault of their own (other than not keeping up with payments), but on every mortgage and loan application it is written in black and white:

"Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it"

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I think I might cancel my mortgage repayments insurance, stupidly i took out insurance to protect me from the unforseen, what an idiot i have been.

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Yes I’m as incredulous as everyone else appears to be about this.

Unfortunately these hard times are going to catch people out, inc it seems the government, who’ve over stretched. In some cases I accept that it’ll also take down some unlucky people who are made redundant through no real fault of their own.

Those who are made redundant can easily and very necessarily helped out by the Government bolstering the Statutory Redundancy pay system instead of this nonsense.

But I suspect the people caught out by this recession will mostly be those who not so long ago were rubbing their hands at the prospect of making a killing on their property in the future, and I include the Banking industry in this too.

Life is tough, very tough these days and finding that you haven’t planned as well as you could have is a difficult lesson to learn, but it won’t be learned if handouts are given as soon as time gets hard.

Mind, if this current legislation is aimed purely at those (largely) immigrant families who until recently were being accommodated at Ealing Council’s (and some others) great expense in the local mansions, then of course it’s perfectly understandable.

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On a slightly different note, the Scots seem to have a much better system than the English. In Scotland, they have a Landlord repossession system: when you start having difficulties, you apply for someone to buy your property for you and then you just pay them rent. That means that Mr Landlord gets some help with buying a property with tenants already (and helps to boost the housing market) and that Mr and Mrs Debt dont have the awful process of going through the repossession, or of not being able to find a buyer (not to mention to cost of moving)…

Scotland 1, England 0…?

Scottish Mortgage to Rent Scheme.

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well, for me im rubbing my hands in the prospect for a lovely bargain to popup whilst me and my girlfriend have a big deposit sitting in our accounts. i have no debt I cannot afford to pay off tomorrow if I wanted too, a secure job and currently live in a house in which the mortgage is fully paid(obviously not mine). but the way the market was we couldnt realisticly afford our own place for another 5 years. Now it looks it should be less than that if the prices keep going down the way they are.:smiley:

in my last job I worked with a guy who kept buying houses by remortegaging them and then buy another from the profit he made. within the 2 yrs I worked with him he bought 4 houses and liked to brag about it to everyone in the office. People like that are the people who were destroying the market in the first place and I have no sympathy at all for them, in fact I hope he looses all his houses…

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The prices may go down a little bit but in 2 or 3 years time they’ll be back to where they were before.

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What deeply unpleasant people you are.

Not everybody borrowed huge multiples on self-certified, 125% mortgages. And, not everybody treats their house as just another ladder on the housing market ladder, for some it’s their home for the next ten years or more.

As for losing one’s home, the lost money is probably the least of anybody’s concern; I know I’d be much more worried about being homeless and feeling the loss of stability and a safe haven. The personal loss will be deeper felt than the financial one.

Here’s a friend of mine’s story:

She’d shared flats for over ten years, with friends and strangers, and during that time moved house almost annually. Sometimes the landlords raised rents by 50% at renewal, sometimes they gave two-month notice to vacate, as they were selling, sometimes a flatmate quit and they couldn’t find a new one. She lived in one room, with most of her stuff in boxes, and never felt settled.

Finally she got a well paid permanent job and decided to buy something of her own, out of town. Her mortgage was three times her annual salary, with a 10% deposit. It was well within her capabilities to pay, leaving plenty for other expenses and savings. However, a month after she moved in, she was unfairly dismissed from her job, and got no redundancy. Nor did she get the jobseekers allowance, as according to the job centre, she could sue the company. She couldn’t, though, as she’d been there less than a year.

The mortgage payment protection didn’t kick in, as she lost her job less than the three months required by her policy after signing up for it. She’s managed to pick up some temp work over the year, but not enough to pay the mortgage, and ended up overdrawn.

She loves her flat, has made it her home and for the first time in years feels settled and free of the depression that had plagued her for over ten years. She’s now one month in arrears with her mortgage, as the bank finally cut the overdraft, and with nothing left to sell and nobody to lend her money, she’s extremely worried and back on medication for the depression to keep her going from one day to the next.

In her line of work, it’ll get busier in Jan/Feb, but by then she’ll be 3-4 months behind with her mortgage, let alone any other bills, so she doesn’t know how she’ll cope until then and if her building society will let her keep the place or start repossessing it. Missing payments also affects her credit rating, which needs to be a good one for her to pass the necessary credit checks for work, so this is another worry.

People like that need help. If she loses her house, the government will have to pay her housing benefit to cover the rent, or she’ll end up homeless, which is hardly of benefit to the nation as a whole. It’s surely much better to keep people in their homes and allow them to ride the difficult times. This interest is only deferred anyway, whatever she’ll get from the government, she’s expected to pay back, and she’s happy to do that; anything to allow her to keep her home.

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What this is about is that over the next 12 months hundreds of thousands of people will lose their jobs. If the Government does nothing those people will probably end up homeless as unemployment benefits give very little help with mortgage interest these days.

My understanding is that all this is is a deal whereby the lenders have agreed to add interest onto the end of loans if people can’t pay, so people pay for longer, and the Government has agreed to under pin that so the banks don’t go bust due to cash flow problems.

If they didn’t do this there would be hundreds of thousands of homeless families, meaning we would be paying to find them homes. They would stay out of work as homeless people can never find work, and everyone would be losers.

The actual cost to the tax payer is very little as the banks will still get their money, only later when people are back in work. If this wasn’t done the cost to the tax payer in the next couple of years would be huge and there would be no net benefit for society.

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What they haven’t mentioned is that this will still qualify as a ‘arrangement to pay’ so it will screw your credit up.

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monopoly got real, the mortgage holiday is your get out of jail card.

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It is hardly get out of jail free. The unpaid money still has to be paid by the home buyer eventually.

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What annoys me the most out of all of this is that the government are only making this effort because of the up and coming election… too little action too late im afraid.

FSA???.. they make me laugh, more like FA!!!

I’ve already lost my job due to this mess and im telling everyone now… the **** is not even close to the fan yet.

Mark my words.