Mortgage safety net for 10million families

04 December 2008 / by Rachel Mason
Homeowners facing repossession will be allowed to defer their mortgage repayments for up to two years.

During the Queen's Speech debate yesterday, the Prime Minister unveiled a Government-backed scheme to help people struggling to pay their mortgages avoid repossession.

Families who have a mortgage of up to £400,000 will be able to take a mortgage payment holiday for up to two years if they are faced with a sudden loss of income.

Gordon Brown said the unprecedented move is aimed at the 10 million middle income families who are currently living in fear of losing their jobs and their homes.

The deal will mean that people with mortgages of up to £400,000 will be able to cut or defer payments, with the tax payers underwriting the risk of default. The mortgage holder would be allowed to reduce or reschedule their monthly payments, and the money forgone by the lender would be added to the mortgage and have to be paid when the customer's circumstances improved.

If the mortgage holder was never able to pay and had to default in spite of the help, the tax payer will pay the interest deferred. The eight big lenders - HBOS, Abbey, Nationwide, Lloyds TSB, Northern Rock, Barclays, HSBC and RBS - who account for 70 per cent of the mortgage market, have already signed up to the £1billion plan.

During his Commons speech, 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 finances back on track."

Mr Brown also added that the Government owned lenders Northern Rock and Bradford and Bingley would not even start the repossessions process until a mortgage holder was at least six months in arrears.

The Chancellor said: "This is real help for homeowners at risk of repossession through no fault of their own. The scheme will give people who face a temporary fall in their income the confidence that they need to rearrange their finances so they can come through a difficult period without losing their home."

While housing minister Margaret Beckett said the scheme would give households "the breathing space to get back on their feet again and help ensure they do not face or fear repossession," and said that she wants to see "all lenders signing up to this scheme as part of their efforts to ensure that repossession is always an absolute last resort."

Find the latest mortgage deals »

© Fair Investment Company Ltd