VICTIMS of the economic downturn can have their mortgage interest payments delayed for up to two years under a government scheme to avoid homes being repossessed, Gordon Brown announced yesterday.
The scheme is due to start early next year and will cover mortgages of up to £400,000. Eight major lenders, responsible for 70 per cent of the UK's mortgage market, have already signed up to the scheme, the Prime Minister said.
He announced the move in the Commons as MPs began debating the Queen's Speech, which set out 11 new bills for government action. These centre on welfare reform, eradicating child poverty and a new savings account for people on low incomes.
Mr Brown said the Homeowners Mortgage Support Scheme was designed to help families where one of two earners was made redundant or suffered a large fall in income. Help on mortgage repayments already exists for single-income households.
Prior to the announcement, there were fears that about 75,000 homes would be repossessed next year. Figures released last month showed that repossessions had risen by 12 per cent across the UK, between the second and third quarters of the year. A total of 11,300 properties were seized between July and September – compared to 10,100 in the preceding three months.
Under the scheme, homeowners who found they could no longer keep up with their repayments would be encouraged to switch to interest-only mortgages, allowing payments to be deferred for up to two years. By that time the government hopes their incomes would have risen back to a level which would allow them to meet their full mortgage payments.
The government would not make any interest payments on the homeowner's behalf during those two years but would guarantee the unpaid amount. In the event of the mortgage payer ultimately defaulting on the loan when the two-year period expires, the taxpayer would cover the lender's losses. The government has set aside £1 billion of public money for this.
The unpaid interest would be added to the total cost of the mortgage, with monthly repayments recalculated once both earners see their income return to normal.
Full details of how the scheme will operate are expected to be announced within days. The banks which, by last night, had agreed to participate are HBOS, Nationwide, Abbey, Lloyds TSB, Northern Rock, Barclays, Royal Bank of Scotland and HSBC.
The level of interest payments to be deferred would be up to 100 per cent.
Mr Brown told the Commons: "Hard-working households that experience a redundancy or severe loss of income as a result of the downturn will be able to defer a proportion of their interest payments for up to two years as they get their family finances back on track."
He said the measure was in addition to protection for the unemployed who can claim help to meet payments after 13 weeks.
"This measure will extend protection for those in work as well as those out of work and be available at a higher level of income," he said. "The result will be more affordable monthly payments for homeowners who are needing a bridge through difficult times."
The Prime Minister also announced that Northern Rock and Bradford & Bingley, the two nationalised banks, were to follow Royal Bank of Scotland in doubling to six months the period before repossession proceedings were started, a move important for those who fall outside the criteria of the new deal. In addition, more legal advice would be offered to people facing financial difficulties.
Mr Brown's spokesman said the measures were targeted at middle-income households who failed to qualify for existing measures to help people claiming Jobseekers' Allowance. Typically, this would cover the situation where one person lost their job, was forced to take a job at a much lower rate or could no longer earn overtime as a result of the worsening economic situation.
It is understood that families with savings in excess of £16,000 will not qualify for assistance. "The first port of call should be people's savings," a government source said.
The aim was to provide such families with "breathing space" to get their finances back in order, the spokesman said. "This is targeted at many of the middle income families who want to work and don't want to go on benefits and simply have their mortgage paid for them." But he admitted the scheme would not prevent repossessions from happening. "We are making it more difficult for repossessions to happen. We are taking action in order to ensure that repossession is a last resort."
Both the SNP and Tories said more details were required about how the scheme would operate. Stewart Hosie MP, the SNP's finance spokesman at Westminster, said: "Just like the fag packet it was written on, this announcement should probably come with a health warning.
"While I welcome any genuine steps that help mortgage holders, the way the Prime Minister has gone about his announcement has created more uncertainty at a time when people want clarity and certainty."
Peter Bolton King, chief executive of the National Association of Estate Agents, said the decision to underwrite mortgage repayments for families facing repossession was "extremely welcome at what is a difficult time for many".
He said: "Finally the banks and government are working together to offer real assistance to the homeowner."
The Unite union's joint general secretary, Derek Simpson, said: "There is nothing more important than keeping a roof over our families' heads and Gordon Brown has shown that he understands this and is prepared to act."
The plan came as it was revealed that banks are to be forced by law to treat their customers fairly and will face hefty fines if they fail to comply. Individual banks also announced steps to ease pressure on borrowers and business customers.
Efforts to shore up the economy, including measures to encourage savers and protect borrowers, were at the core of the Queen's Speech.
Last month, Mervyn King, governor of the Bank of England, warned that institutions needed to up their lending – and hinted that steps would be taken to ensure they did.
The moves by the government and individual banks were last night welcomed by the Federation of Small Businesses in Scotland, as well as the CBI.
The Treasury said the Banking Bill would "strengthen the framework for protecting bank depositors, enhance financial stability through measures to reduce the likelihood of banks getting into difficulties and improve the tools available to resolve the situation if they do".
The bill will allow the Bank of England and other authorities to intervene when a bank gets into severe difficulties. It promises to change the Financial Services Compensation Scheme to ensure faster pay-outs.
The legislation also gives the Bank of England a statutory "financial stability objective" and allows it to "lend in a more effective manner".
The bill, which applies to the entire UK, enables the Financial Services Authority to collect information from banks in difficulty and share it with the Treasury and Bank of England. The bill has already begun its passage through parliament.
HOW IT WORKS
• THE Homeowners Mortgage Support Scheme is targeted at families with two earners with a mortgage of up to £400,000 who do not benefit from other schemes.
• The system is activated when one of the earners loses his or her job, or suffers a significant cut in income.
• From the start of next year, they will be able to approach their mortgage lender – eight major lenders representing 70 per cent of the market have signed up already – and ask for their mortgage interest payments to be deferred until their income returns to normal.
• They will be able to defer up to 100 per cent of the mortgage interest payments for up to two years. However, the system will only continue while one person is out of work or earning a substantially reduced wage.
• Homeowners will have to rely on their savings as a first resort, if they have deposits of £16,000 or more.
• Once the family's earnings return to "normal" – this has not been defined yet – then the missed mortgage interest payments will be added to the total sum outstanding.
• The mortgage can then be reprofiled over an agreed number of years. The government's expectation is that repayments are set at a level which is affordable to families' individual circumstances. The government would only pay money to a bank or building society in the event of a mortgage collapsing.
Child Poverty BillFOR the first time, the government will enshrine in law its commitment to abolishing child poverty by 2020.
Tony Blair set the ambitious target in 1999, when there were estimated to be about 3.4 million young people living in deprivation. He also laid down an interim goal of halving child poverty by 2010.
To date, around 600,000 children have been lifted out of poverty.
However, campaigners have consistently warned that the government is not doing enough to meet its pledges. And the Conservatives said that the number of children in poverty had risen by 100,000 for the second year running.
The target is expected to be particularly difficult in an economic downturn. Consultation is being carried out on what should be in the legislation to best tackle poverty.
Welfare Reform BillWELFARE recipients will have to undergo more stringent tests to continue getting benefits.
The bill will abolish Income Support and move all recipients on to either Jobseekers' Allowance if they are well or Employment and Support Allowance if they are sick.
Anyone who does not attend interviews at local Jobcentres to be questioned over what steps they are taking to get into work could be face sanctions. Controversially, the legislation also requires that both the names of the mother and father are put on birth certificate of newborn babies.
Ministers said the bill would help achieve the goal of an 80 per cent employment rate, which they said would be the highest of any major industrialised country. The Conservatives claimed the government had stolen the idea from them.
Equality BillTHE bill will bring together all strands of equality issues under one piece of legislation. It will fight discrimination in all forms, including age discrimination. One of its main goals is also to tackle the gender pay gap.
The bill will ban "secrecy clauses" so workers can compare their wages and challenge employers who unlawfully pay them less. The government estimates the gender pay gap is 21 per cent when the wages of full and part-time women workers are compared with men.
The bill reduces nine pieces of legislation and around 100 statutory instruments into a single piece of legislation. It will require the Scottish Government's co-operation as it allows Holyrood to set public sector duties for Scottish bodies for three new areas: religion/belief; sexual orientation and age.
Savings Gateway BillPEOPLE on low incomes will be encouraged to save, with the government giving them 50p for every £1 they put away. Provisions for the Saving Gateway, will help around eight million people.
Ministers hope people on low incomes will be able to better plan for the future, as well as encouraging them to engage with financial institutions.
It also gives many people who are shut out of the banking system access to a savings account for the first time. People can contribute up to £25 a month to the accounts for 24 months, after which the government contribution of up to £300 will be added.
A pilot of the scheme involving 22,000 people resulted in £15 million being saved. The accounts will be offered by a range of financial institutions such as banks, building societies, credit unions and the Post Office.
The Conservatives branded the bill a "rehash".
Coroners and Justice BillCRIMINALS will be banned from profiteering from their memoirs in one of a number of measures contained in this bill.
Although Scotland has its own legal system, large parts of the proposed legislation will apply north of the Border.
Measures that will affect Scotland include ensuring that bans do not run concurrently with custodial sentences.
But other provisions have led to warnings from campaigners that the bill will enshrine an "Orwellian future". New powers allowing personal data to be passed between government departments will create a "database state".
A new mechanism will allow data to be shared between government departments without debate in Parliament. The bill, however, does not address the lack of power that Scotland has in conducting inquests over Scottish soldiers killed abroad. Bereaved Scots families will still have to travel to England for inquests into the deaths of fallen soldiers.
Child Poverty BillSCOTLAND will have extended powers over the surrounding seas under the Marine Bill.
FOR the first time, the government will enshrine in law its commitment to abolishing child poverty by 2020.
Tony Blair set the ambitious target in 1999, when there were estimated to be about 3.4 million young people living in deprivation. He also laid down an interim goal of halving child poverty by 2010.
To date, around 600,000 children have been lifted out of poverty.
However, campaigners have consistently warned that the government is not doing enough to meet its pledges. And the Conservatives said that the number of children in poverty had risen by 100,000 for the second year running.
The target is expected to be particularly difficult in an economic downturn. Consultation is being carried out on what should be in the legislation to best tackle poverty.
The bill sets out plans for an extended network of "marine conservation zones" by 2012, which aim to safeguard rare and threatened habitats and species.
It will also introduce a planning system for the seas to cover coastal and offshore developments such as wind farms and a more streamlined process for licensing marine developments. Following a campaign by The Scotsman, Scottish ministers will be given powers to designate marine conservation zones for the Scottish offshore region. Holyrood will be given overall responsibility for planning and environmental conservation matters at sea up to 200 miles from the coast.
Marine and Coastal BillSCOTLAND will have extended powers over the surrounding seas under the Marine Bill.
The bill sets out plans for an extended network of "marine conservation zones" by 2012, which aim to safeguard rare and threatened habitats and species.
It will also introduce a planning system for the seas to cover coastal and offshore developments such as wind farms and a more streamlined process for licensing marine developments. Following a campaign by The Scotsman, Scottish ministers will be given powers to designate marine conservation zones for the Scottish offshore region. Holyrood will be given overall responsibility for planning and environmental conservation matters at sea up to 200 miles from the coast.
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