Ross Lydall: A rabbit out of a hat, but some smell a rat

Published on Wednesday 3 December 2008 21:47

AMID the splendour of a great State occasion, the Queen announced that the government's "overriding priority" was to ensure the stability of the British economy during the global economic downturn.

But, as she turned the pages of her "most gracious" speech, there was little immediately apparent in terms of providing help to hard-pressed families fearing for their jobs.

Several hours later, Gordon Brown, the Prime Minister, unveiled a three-point plan in the Commons to protect people living with the threat of repossession. At first glance, it appeared to remove at a stroke the threat from most families of losing their homes over the next two years. But how many will it help? Nobody knows.

Help already exists for single-income households where the sole earner loses his or her job. Mr Brown's Homeowners Mortgage Support Scheme, announced yesterday, widen-ed this to cover families with mortgages up to 400,000.

Under the deal, which already has the backing of eight major lenders, no mortgage interest payments need be made for up to two years if one person is made unemployed.

The government is desperate to keep people in their homes, knowing how devast-ating a blow it is to be forced to hand back the keys to the building society.

What it won't do, though, is pay anyone's mortgage. Payments will simply be deferred, meaning monthly repayments will be potentially much larger once both earners are back in employment.

Mr Brown has essentially used his muscle with the banks to get them to accept a government IOU. In the event of people defaulting on their mortgages in the long run, they will be compensated for their loss. Until then, he is asking them to sit on their hands and be patient.

The banks will therefore receive less in mortgage repayments than they would expect. That seems the one weak point of the scheme. Few banks will want to see the amount of money flowing into their coffers being reduced in such fraught times.

But it will not be a free-for-all. People with 16,000 or more of savings will be expected to use these first before applying for a mortgage repayment "holiday".

Ministers want to keep the scheme at arm's length too. Negotiations will have to be conducted between borrower and lender, not by writing into Downing Street asking for a stay of execution.

Opposition parties believe they can smell a rat. Like many of Mr Brown's schemes – the compensation for the 10p tax shambles being an example – they tend to unravel when more detail emerges. They suggest he has drawn up the plan on the back of the proverbial envelope. But the National Association of Estate Agents was quick to give its approval.

With the banks and NAEA on his side, Mr Brown should have a package that works.