Government offers help for homeowners facing repossession

This week, the government launched the homeowner mortgage support scheme (HMS), designed to help homeowners who are unable to meet their mortgage payments after a sudden drop in income.

The scheme will be available to any homeowner who suffers an unexpected drop in income through redundancy or a cut in wages or hours, except those who qualify for income support, since they will qualify for mortgage interest (SMI) from the Department for Work and Pensions.

The HMS scheme will allow homeowners to shrink their mortgage payments by up to 70% for a period of two years. During this time, interest will still be accrued to be paid at a later date, so the scheme represents an opportunity for deferral, rather than a way to avoid payment in the long term. While the government view the scheme as providing homeowners with a chance to get back on their feet, some critics believe this means piling up greater problems in the future.

Ray Boulger, of John Charcol, the broker, said: “This scheme may be useful for a small number of homeowners but for borrowers with little or no equity in their homes it could actually make the situation worse.”

To qualify for the HMS scheme, homeowners must have a mortgage worth less than £400,000 and savings of less than £16,000. A return to a better income level must be foreseeable, and homeowners are expected to have attempted to negotiate with their mortgage lender before applying for the scheme.

The scheme is supported by a number of lenders including Lloyds TSB, Halifax, Royal Bank of Scotland and Yorkshire bank, but Abbey, Barclays and Nationwide have reportedly refused to take part. However, according to the Council of Mortgage Lenders (CML), those holding mortgages with these banks will not be left at a disadvantage.

“Lenders fully recognise their responsibility to keep people in their homes where repossession can be avoided,” said CML director general Michael Coogan. “The fact that some lenders are utilising the new scheme and others are not indicates simply a difference in their approach to forbearance, not in their commitment to it.”