Gordon Brown unveils mortgage help plan
People facing repossession will be able to defer part of their mortgage interest payments for up to two years under plans unveiled by Gordon Brown.The plan is designed to give those who lose their jobs or take a big cut in their income an extended breathing space before their home is at risk.
The scheme will cover mortgages worth up to £400,000, the Financial Helpline understands.
Mr Brown made the announcement during a House of Commons debate on the Queen's Speech, which took place earlier.
The PM told MPs the eight major lenders had signed up to the plan, which is meant to ensure banks no longer repossess homes if mortgage payments are missed for six months.
Mr Brown told MPs: "Hardworking households that experience a redundancy or significant 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 while they get their family finances back on track."
It is hoped the move will not just reduce the number of homes repossessed but will reduce the widespread fear of repossession as well, government sources say.
The full details of the scheme - such as who is eligible and what proportion of mortgage interest payments would be covered - have yet to emerge.
Insurance scheme
One source described repossession as "a small risk of something disastrous happening to you" which thus has a major depressing effect on economic confidence.
Currently, those on benefits have their interest payments covered for two years if their mortgages is below £200,000.
What is, in effect, a government mortgage insurance scheme will work by the Treasury underwriting the extra risk that banks take.
The banks will not need extra capital in order to cover the extended risk they take that people will default on their mortgages.
The theory, therefore, is that the move will not reduce the funds available for other borrowers.
Last week, the major lenders formally agreed to a minimum three-month delay before starting repossession proceedings, although they argued this was standard practice in the industry anyway.
And the nationalised Northern Rock bank has adopted a policy of waiting six months before repossessing a mortgage borrower who has fallen into arrears.
Repossessions up
The bank is following the recent example of Royal Bank of Scotland, now under majority state control.
Northern Rock said it normally took 15 months to repossess a home anyway but the state-owned bank has been accused of being aggressive and recently admitted that it would account for 10% of all repossessions this year.
It comes as new estimates from the Council of Mortgage Lenders (CML) suggest repossessions will rise sharply to 75,000 next year. That would be almost as many as during the peak of the last recession in 1991.
The CML believes that repossessions, already rising steadily, will hit 45,000 this year.
The number of repossessions jumped by 12% in the third quarter of the year, according to CML figures, with 11,300 homes taken back in that period.
Earlier, in the Queen's Speech, the government said fighting the economic downturn was its "overriding priority" for the year ahead.
Queen's speech
In a slimmed down legislative programme, it unveiled proposed legislation aimed at preventing another banking crisis and protect depositors.
Families on lower incomes are to be encouraged to save more through financial incentives.
And a voluntary code of conduct requiring banks to give customers notice if they plan to withdraw or alter credit facilities will be made mandatory, the government said, but this is not part of the Banking Bill.
Other measures in the Queen's Speech include forcing the long-term jobless to make more of an effort to find work.
And moves to make immigrants who commit even minor crimes, or who make no effort to integrate into British society, wait longer to become UK citizens.
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