CML urges government not to cut ISMI further

With a 40% cut in the rate at which borrowers receive income support to cover their mortgage payments coming into effect on 1st October, the CML is urging the government to resist further cuts to this benefit in its forthcoming comprehensive spending review and, in particular, to maintain the 13-week qualifying period for payments.

The CML understands the pressures on government funding and accepts there is a case for reducing the rate from 6.08% to 3.63%, as the government has done today. However, the decision means that fewer borrowers will receive payments covering their mortgage interest in full, and all households receiving the benefit will come under greater financial pressure.

The CML can nonetheless re-assure borrowers that lenders will continue treat them sympathetically if they experience payment problems. We urge any borrower anticipating payment difficulty - either as a result of the benefit change or for any other reason - to contact their lender as soon as possible. Lenders will treat borrowers fairly, and will seek to work out a plan for dealing with the borrower's problems that is tailored to their individual circumstances.

Commenting on today's reduction in the rate at which ISMI is paid from 6.08% to the Bank of England's average mortgage rate (3.63%), CML director general Michael Coogan said:

"A combination of low interest rates and the concerted efforts of borrowers, lenders and the government have brought about a reduction in arrears and possessions, despite the economic slowdown. Paying benefit at a lower rate will put extra pressure on household finances, and any borrower anticipating payment problems should talk as soon as possible to their lender, who will treat them sympathetically and try to work out a solution with them.

"Lender forbearance has played a crucial role in keeping arrears and possessions in check, and this is reinforced by the certainty for lenders and borrowers of benefit payments, albeit at a reduced rate, within 13 weeks. But any move to lengthen the qualifying period - and in particular to return to a 39-week waiting time - will seriously undermine the efforts of lenders and borrowers to work together to try to ensure that going into arrears does not result in the home being repossessed. Continuing government support, including the funding of debt advice, is vital in helping keep people in their homes."

TACKLING THE DEFICIT

"The most effective thing the government can do for homeowners is to tackle the record deficit and avoid the need for rapid increases in interest rates," Mr Shapps said. "But there must still be effective help on hand for those struggling to pay their mortgages."

Recent figures from UK lenders, published in May this year, show the number of homes repossessed fell by around 7.5% in the first quarter of 2010.

Figures show that the number of homes repossessed dropped in the last quarter of 2009 - from 10,600 - to 9,800 in the first quarter of 2010. The CML has described its original forecast of 53,000 repossessions in 2010 as "pessimistic", and said that lenders had taken into account the courts’ protocol that meant repossession should only be used as a last resort.

Mr Shapps said that the government was also publishing a report, commissioned by the previous administration, which said tolerant lenders and government schemes had helped homeowners but it also warned that there was a risk of high repossession levels in the years to come.

Britain could face “Wave Of Repossessions”

Britain's housing market is poised for a wave of repossessions as the Coalition Government's fiscal austerity package starts to bite.

In a bleak assessment of the market's prospects, the ratings agency Standard & Poor's (S&P) said that prices are still over-valued when compared to household incomes and that the budgetary squeeze planned by the Chancellor George Osborne could significantly test some borrowers' ability to make their mortgage payments, particularly if interest rates start to rise. Repossession levels have remained unusually low, not least because interest rates have remained at an all-time low for months and banks have paid heed to warnings from the Government and regulators that they must only use repossession as "a last resort".

S&P credit analyst Neil Monro said: "We note that a high percentage of nonconforming (subprime) borrowers remain in severe arrears. Therefore, possible future increases in unemployment or interest rates may cause a further wave of repossessions."

The austerity package is likely to lead to hundreds of thousands of jobs in the public sector set to go - leading to a knock-on effect in the private sector, with some analysts fearing that the failure of the contractor Connaught could be followed by others as public sector work dries up.

S&P also said it believed that prices were fundamentally over-valued. "For example, the average house price-to-income affordability ratio for first-time buyers is still stretched at 4.3 times, relative to the long-term average of 3.3 times," the agency said. First-time buyers have found it hard to get mortgages, with 95 per cent loans all but non-existent prompting calls for government underwriting to prop up the market in some quarters.

SUPPORT FOR MORTGAGE INTEREST CUTS CAUSE HARDSHIP

48 year old MS sufferer Helen Wade from Norwich recieved a letter giving her just one week’s notice that her that her benefits were being cut. The government was cutting the amount of money it contributed towards her mortgage payments. "They just gave me four days' notice that the payment is being cut in half," said the former nurse, who had to give up work in 2004 when her illness forced her into a wheelchair "I have to fight for everything and this just feels like a kick in the teeth."

Helen is just one of over 220,000 people affected by the change in Support for Mortgage Interest. The DWP (Department for Work and Pensions) has cut the rate at which it pays the benefit from over 6% to just 3.63%.

For Helen Wade, this means that the amount of help she gets with her mortgage payments has fallen by around £100 a month and that’s money she simply hasn’t got. "I live on the Government's minimum and just about get by," she says. "I can't sell up and move to a cheaper place because I won't get another mortgage. I've been on the local council's urgent list for more than a year, but they can't find a property with wheelchair access."

The future is looking even bleaker for Helen and about 115,000 other people. The DWP says the rate cut will mean about half of those benefiting will be left with less than their mortgage interest costs.

This benefit was increased during the recession by the last Labour Government to help families struggling with their mortgages but the net effect was that many ended up with the handout paying off some of the capital of their mortgage as well as the interest. It's to stop this that that the DWP has acted now, three months ahead of the January 2011 planned cutback in the benefit.

Bryan Clover, from the poverty charity Elizabeth Finn Care, said that homeowners on low incomes, who are already faced with tough financial decisions every day are going to face further hardship with the new regulations for Support for Mortgage Interest. Many people will struggle to find the extra money to cover this shortfall in mortgage interest payments

"The changes to regulations will impact on those people trapped with longer periods of fixed-rate mortgages at high interest levels, who are likely to be building up arrears. This is likely to result in many people losing their homes," Mr Clover warned.

Repossession Should Be the Last Resort

When People Go Into Arrears

Grant Shapps the Housing Minister announced that government funding for a scheme aimed at helping those facing home repossessions in England is going to be cut.

He said that the government grant for each home bought under the Mortgage Rescue Scheme would be reduced although the total kitty was unchanged.

This is a scheme lets people sell their property and stay in it as a tenant. Mr Shapps said it was more effective to reduce the deficit to keep interest rates low.

The Mortgage Rescue Scheme in England, which also allows people to sell part of the home in a shared equity deal to reduce mortgage payments, has helped fewer than 650 households since it was set up in early 2009, although more than one thousand eight hundred further applications were ongoing by the beginning of April 2010.

When the previous labour government launched the scheme in january 2009, ministers said that up to 6,000 households could be helped by the scheme. Housing groups said government support for homeowners had helped keep a lid on repossessions, which are lower than during the housing slump of the early 1990s.

This prompted the cml (council of mortgage lenders), the citizens advice bureau and shelter to write to chancellor george osborne to urge him to keep such support schemes going. Mr shapps said that the mortgage rescue scheme needed to be "Refocused" To offer better value for money, claiming that the funding of 180m this financial year might run out.

Funding levels are to be looked at again in the overall spending review in october. Another scheme to help those struggling with mortgage arrears would be retained as a backstop if interest rates rose, he added. There must still be effective help on hand for those struggling to pay their mortgages

The homeowners mortgage support scheme allows homeowners to defer up to 70% of their mortgage interest payments if they have a sudden, and temporary, loss of income. There are various other terms and conditions, and not all lenders allow it. So far it had only helped 34 people, the government said.

Repossessions could be at "Low Point in the Cycle"

Although it's encouraging to see repossession numbers falling over the past six months,.it is possible that we are now at the low point in the cycle and that numbers may start to climb later in the year.

Lenders will have exhausted the options open to them to assist homeowners who are continuing to struggle. Increased unemployment will put more households under pressure, as will future rises in mortgage interest rates. When taken together, these could trigger more repossessions from early 2011 onwards.

Grant Shapps outlines Government support for struggling homeonwers 

Housing Minister Grant Shapps has today outlined how the Coalition Government will provide much-needed support to homeowners at risk of repossession. 

The risk of repossessions remains high - the Council of Mortgage Lenders' latest forecast is that there will be 53,000 repossessions in 2010. So Mr Shapps is also stepping up work with partner organisations including Citizens Advice and Shelter to help promote the help available to struggling homeowners. 

And today, he welcomed the support of Martin Lewis, creator of www.moneysavingexpert.com (external link), for the ongoing effort to encourage more struggling homeowners to seek early help and advice with their mortgage worries. 

But the Minister also emphasised that the most effective thing the Government is doing to help homeowners is to tackle the record deficit and prevent the need for rapid increases in interest rates.

One of Mr Shapps's first tasks since becoming Housing Minister has been to take a fresh look at Communities and Local Government schemes which provide help to homeowners facing difficulty in paying their mortgage, making sure they offer the best deal for them and value for money for taxpayers.

With this in mind, the Mortgage Rescue Scheme will be refocused to delivery better value for money, with a reduction in the grant rate paid to Housing Associations and tighter caps on property price and repair costs.

Using their knowledge of the needs of their communities, councils will help to deliver the scheme alongside their local housing associations to ensure that the scheme is targeted at homeowners who are most likely to benefit from it.

The longer term role for the Mortgage Rescue Scheme will be considered through the Spending Review.

Since its launch in April 2009, the Homeowners Mortgage Support Scheme has only helped 34 people although research to be published shortly shows that it has had a positive impact on lender forbearance practice and mortgage arrears management. However, given the low administrative costs, the Minister has decided that it will remain in place as a backstop scheme that maybe needed if interest rates rise. It will close as planned at the end of the financial year.

This follows the decision announced in the Budget to move support for mortgage interest paid to a rate that provides better value for money for the taxpayer, by applying the Bank of England published average mortgage rate as the standard interest rate from October.

Grant Shapps said:

"The most effective thing the Government can do for homeowners is to tackle the record deficit and avoid the need for rapid increases in interest rates. But there must still be effective help on hand for those struggling to pay their mortgages.

"So today I can confirm that the Mortgage Rescue Scheme and Homeowners Mortgage Support Scheme remain available as a last resort to homeowners facing the real threat of repossession.

"But the most effective thing anyone with money worries can do is to not bury their heads in the sand, seek early advice and speak to their lender to avoid losing their home. I would urge people to visit www.direct.gov.uk/mortgagehelp (external link), or contact organisations like Citizens Advice or Shelter for free advice on taking control of their finances."

Independent Moneysavingexpert Martin Lewis said:

"Mortgage repossession's a catastrophic threat for struggling families, and anything that's done to help them ride it out is crucial. The most important rule is get help as soon as possible - fighting repossession when they're coming for your house is a too late, instead act as soon as you spot the potential for trouble and possible arrears.

"The help at hand means some who qualify will have their mortgage interest paid for them, others will be allowed to postpone paying both through official government scheme and improved lender leniency and a few may have their house part bought.

"So the golden rule is if you're in trouble speak to your lender asap and a non profit agency like Citizens advice or National Debline for help plus you should visit the websites:

• www.moneysavingexpert.com/mortgagearrears
• www.direct.gov.uk/mortgagehelp
  

and you may find its easier to start sleeping at night."

A separate report by Professor John Muellbauer and Dr Janine Aron of Oxford University published today shows that the combination of greater tolerance from lenders and Government schemes on offer has had a notable effect in helping homeowners. This report also warns that the risk of increased numbers of repossessions will remain high in the years ahead.

An independent evaluation of the schemes by a team led by Professor Steve Wilcox from the Centre for Housing Policy (University of York) and the School of the Built Environment (Heriot Watt University) is due to be published shortly showing that there is widespread support for the Mortgage Rescue Scheme from partners and borrowers and that its continuation would remain beneficial at a lower grant rate. And on the Homeowners Mortgage Support Scheme, the report shows that it has been found to have influenced the extent to which lenders have offered greater tolerance and patience to those in arrears, and that there was a case for it continuing until the housing market had recovered.

The Department's schemes are part of a comprehensive range of help and advice for struggling homeowners.

Anyone with mortgage worries can go to www.direct.gov.uk/mortgagehelp (external link) where they can get impartial advice, find out the steps they can take to keep their home and prepare an action plan to tackle their own finances. Free debt advice is also available from organisations including Citizens Advice, Shelter and National Debtline.

The Financial Services Authority has also recently introduced tough new rules on lenders so repossession remains the last resort, and so those in arrears who have come to an agreement on repayment are treated fairly. 

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