Mortgage help for struggling families

Dec 4 2008 by William Green, The Journal

FAMILIES struggling to keep their homes from repossession were last night thrown a lifeline to slash their repayment bills by Northern Rock and the Government.

Gordon Brown announced that hard-pressed homeowners could defer up to 100% of mortgage interest payments for up to two years amid fears that 75,000 families face repossession next year.

The Prime Minister said eight major lenders – including Northern Rock – had backed the scheme for mortgages up to £400,000 covered by a Government guarantee of up to £1bn against potential defaults.

The scheme is due to come into force early next year and is directed at people who temporarily lose some or all of their income, because of redundancy or reduced hours, who may not qualify for other help.

But the deferred payment will be added to the remaining loan after an agreed period, with the borrower paying it off when their finances improve – maintaining an affordable monthly payment by extending the mortgage term.

The news came as state-owned Northern Rock joined other banks in agreeing repossession proceedings would not begin until households were six months behind on payments.

Unveiling the interest payment measure, Mr Brown said: “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 Homeowners Support Mortgage Scheme was in addition to protection for the unemployed who can claim help to meet payments after 13 weeks.

Lenders already signed up include HBOS, Nationwide, Abbey, Lloyds TSB, Northern Rock, Barclays and HSBC.

During a Commons debate on the Queen’s Speech, Mr Brown also announced that the voluntary code of conduct for banks would become statutory, meaning companies falling foul of it could face sanctions like fines.

Other planks of the Government’s strategy include free debt advice at court and an instruction to judges that repossession should be a last resort.

Tyne Bridge MP David Clelland said: “I am pleased that Northern Rock is one of the banks that have agreed to this scheme. It will obviously come as a great relief to many people who are finding themselves under pressure as the recession bites.”

Hugh Morgan Williams, chairman of the Washington-based Canford group and a senior CBI member, warned it was not a “get out of free jail card” and that penalty charges could be buried in small print.

“There are probably quite a few questions that one would need to ask about that. Frankly this kind of initiative should be coming from the lenders themselves rather than the Government force it upon them,” he added.

Tory Shadow minister for Tyneside Alan Duncan said: “We welcome anything that helps people stay in their homes. But as with every Gordon Brown announcement, we’ll have to study the details and not just the headline.”

Northern Rock chief executive Gary Hoffman said: “We welcome this initiative which will provide another way of helping customers who are facing repayment difficulties.

“The company will now work through the details of the scheme with the Government.”