Following one of the toughest years ever for homeowners in 2008, the Council of Mortgage Lenders (CML), is forecasting even tougher times as the recession bites deeper.
While mortgages for borrowers on variable rate deals have become progressively cheaper this year, there is concern for those whose scheme comes to an end in 2009. Falling house prices have eroded many borrowers equity to the point where they could miss out on the best deals as lenders demand up to 40% equity for the lowest rates. As we head further into recession, reduced working hours for some, and rising unemployment will add further difficulties for borrowers already stretched by higher household bills. The CML expect the numbers of households more than 3 months in arrears to jump from 210,000 in 2008 to 500,000 by the end of 2009, which in turn is likely to increase repossessions. Their forecast for repossessions in 2009 is 75,000, with a “significant number” expected to come from abandoned property, and the buy-to-let sector.
Lenders are committed to ensuring that repossession is avoided wherever possible, and the Government are playing their part by introducing tougher criteria for lenders where a repossession does end up in court, and by providing additional support for homeowners through improved state assisstance.
Support for Mortgage Interest (SMI), has been improved, and is available to anyone who qualifies for Income Support, Pension Credit or Jobseeker’s Allowance. From 5th January SMI will pay the interest on a mortgage of up to £200,000, 13 weeks from date of any claim.
In the recent pre budget report the Government announced a new scheme called the Homeowner Mortgage Support Scheme, aimed at supporting borrowers in difficult times. The scheme will allow borrowers to make reduced mortgage repayments for up to 2 years, with any unpaid element added to the mortgage, and repaid when the borrower’s situation has improved.
The benefit for lenders is that the Government guarantees any deferred amount for a limited period, protecting the lender from additional loss should the borrower default.
To qualify, the borrower will have to have suffered from a reduction in income sufficient to cause difficulty in meeting payments, and which is expected to be temporary. The maximum loan covered is £400,000, and many of the UK’s largest lenders have signed up to the deal, including HBOS, Nationwide, Abbey, and Lloyds TSB.
The third line of support from Government is their Mortgage Rescue Package, supported by local authorities and Registered Social Landlords (RSL).
Under this scheme, the RSL may take an equity stake in the home, thereby reducing mortgage payments to a more affordable level, or pay off the mortgage completely so the (former) borrower pays a more affordable rent. It is expected to help 6,000 households over the next 2 years, but as with any of these Government packages there are strict qualifying criteria.