Housing: Government to underwrite mortgage loans

Published on Monday 24 November 2008 20:50

THE government has backed a call for it to underwrite billions of pounds of mortgage lending.

In his Pre-Budget Report, Chancellor Alistair Darling accepted recommendations in Sir James Crosby's review of mortgage funding, which said the government should provide backing for mortgage-backed bonds.

The restriction in the market, in which mortgages are packaged up and sold by lenders to raise money, has been a key factor in the drying up of mortgage funding.

Ministers need European Union approval before implementing the scheme. But, the delay could be costly, the Council of Mortgage Lenders (CML) warned yesterday as it urged the government to proceed quickly.

In his report, the Chancellor unveiled a 1.8 billion package aimed at easing the burden on struggling homeowners and encouraging first-time buyers.

Darling made 775 million available for the next two years for social housing and shared equity schemes in an attempt to help more first-time buyers on to the housing ladder.

He also announced help for struggling borrowers by doubling the mortgage threshold for income support to 200,000. Jonathan Turpin, chief executive of Moveme.com, said the additional funding for social housing was a welcome move that would provide jobs within the industry and future housing for the most vulnerable in society.

But he added that it offered too little for first-time buyers, with the Chancellor opting against retaining September's increase to 175,000 in stamp duty land tax beyond next September.

Darling also said that mortgage lenders had agreed not to initiate repossession proceedings within three months of homeowners going into arrears. Michael Coogan, director general of the CML, said he supported the three-month period of negotiation.

"But it is vital to recognise that not all lenders are the same, and not all have received support from the government's interventions in what remains a very difficult financial and economic environment," said Coogan.

Lending

A NEW body – the Lending Panel – will monitor lending to businesses and households, bringing together the government, lenders, consumer groups and regulators. Repossessions should be a last resort, Darling told the House of Commons.

He told MPs that the major lenders had agreed to wait at least three months after a borrower falls into arrears before initiating proceedings. Darling added: "This will give homeowners time to work with lenders to find a solution."

The measures come just days after figures showed lenders took possession of 11,300 homes in the third quarter, up from 10,100 in the second. According to the Council of Mortgage lenders the number of people struggling to make mortgage payments has also risen.

At the end of September, 1.44 percent of mortgages were at least three months in arrears compared with 1.33 per cent at the end of June – equivalent to 168,000 households.

Repossession

THE government brought forward its 200 million mortgage rescue scheme to start early in a number of local authority areas. More than 60 councils in England will now start taking applications from the beginning of December.

Although the scheme applies only south of the Border, there is now likely to be pressure for a similar move from the Scottish Government.

The scheme will help up to 6,000 of the most vulnerable households over the next two years. According to the government, enhancing the cover to families at risk of repossession because of additional loans secured on their home will help stem the tide of repossessions. Often families are more likely to default on these loans because of higher interest rates. Darling also announced that there would be a further 15.85 million to extend free debt advice across the country.

Mortgages

THE scheme that covers mortgage interest payments for those who lose their jobs will be extended to cover mortgages up to 200,000, up from 100,000, it was announced yesterday. Alistair Darling said: "This will help ease worries for homeowners who have lost their jobs."

According to the government, implementing this aspect of help for struggling homeowners would cost the Treasury 200 million. Ministers hope that by extending the financial limit for the aid to embattled homeowners they will ease pressure on thousands of families across the UK.

The move will be welcomed by home mortgage providers, but there will also be some scepticism over whether it will be enough to have an significant impact as more and more people are expected to lose their jobs as the recession begins to take hold.

Energy

MINISTERS committed 100 million of new funding for the "Warm Front" programme to tackle fuel poverty. The money comes on top of 50m spending on the programme brought forward now to support the economy.

According to ministers, this "stimulus will help around 60,000 households cut their energy bills through insulation and improved heating systems". Darling also announced he was providing 60m to provide 16,000 social houses with energy efficiency and heating measures as part of an accelerated the "Decent Homes" programme.

Darling told MPs that improving insulation and energy efficiency "will also help us reduce emissions as well as cutting energy bills for families". He said that in September the government announced a 6.8 billion home energy saving programme. This was expected to lead to a 70 per cent increase in installation rates for cavity wall and loft insulation this winter.

THE PRE-BUDGET REPORT: FULL COVERAGE