No Job, No Problem!
Lost your job? The Government will protect you from repossession for up to two years. But will it work - and is it a good idea?
Homeowners who have lost their jobs will soon be able to take a mortgage interest payment holiday for up to two years.
The new government scheme is aimed at restoring confidence in the property market and providing some breathing space to anyone under financial pressure.
It should also allay concerns about repossessions which have been forecast to increase to a whopping 75,000 next year. This is almost as many as 1991, at the peak of the last recession.
Anyone qualifying for the scheme will be able to put their mortgage interest payments on hold for two years, repaying it once they are back on their feet. Ultimately, if they cannot repay it, the government will be responsible for paying the deferred interest to the lender.
The scheme is expected to kick into effect early next year, with HBOS, Nationwide, Abbey, Lloyds TSB, Northern Rock, Barclays, Royal Bank of Scotland and HSBC all agreeing to take part.
Who will benefit
The new scheme is aimed towards people on middle incomes, with a mortgage of up to £400,000 and savings of less than £16,000.
Only homeowners who have lost their job or suffered a significant loss of income will qualify for the scheme. This could potentially include people who have been forced to take a lower-paid job or those who no longer receive overtime payments.
It is also likely to benefit those who are self-employed and are suffering from slow business, as well as those in dual-income households where one earner loses their job.
Similarly, many homeowners not covered by Income Support for Mortgage Interest (ISMI) will also be able to claim under the new scheme.
Income Support for Mortgage Interest (ISMI)
From January, if you are forced onto benefits, you can claim ISMI after three months of falling behind with your mortgage payments. ISMI will cover the interest on mortgages up to £200,000.
Unanswered questions
Full details about the new scheme have yet to be finalised so it is still unclear exactly how the scheme will operate.
For a start, it is not clear how homeowners can claim under the new scheme and what they should do if they also qualify for ISMI.
More clarification is also needed about what can be classed as a `significant loss of income'. A 1% drop in earnings? Or 10%? Or 50%?
Details of what the Government means by 'deferred mortgage payments' also have yet to emerge. If the interest the homeowner owes continues to roll up while they are not making any payments, this will allow increase the size of the mortgage debt. As a result, after the two years are up, borrowers could be forced to substantially extend their mortgage terms in order to keep their payments affordable.
Finally, if you are on a repayment mortgage, it seems likely you would be encouraged to switch to an interest-only mortgage, but once again this has not been confirmed. If this is the case, borrowers will end up paying more overall in the long run, as my Foolish friend Jane Baker explains in this article.
Good or bad?
It is difficult to assess what kind of impact this new scheme will have until all the details have been ironed out by the government.
But my biggest concern is that it will just be delaying the inevitable. Ultimately you will still have to pay back what you owe, and very possibly more.
What's more, if the housing market takes a long time to recover, homeowners could actually find themselves in a worse off position two years down the line. Anyone faced with repossession at this point could see their home being sold for even less.
That said, the scheme has the potential to prevent thousands of people from being evicted from their homes. That in turn should restore confidence in the property market, and that has to be a very good thing indeed.
More: Home Repossessions Rise To 30,200 In 2008 | New Guidelines To Help Homeowners
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I welcome the government schemes intended to help me and my family stay in our home until I can get a job, because the upheaval , heartache and long-term financial millstone as the result of the horrible, demeaning and quite possibly bankrupting possibility of losing our home is quite real and quite sobering. It is comparatively easy, to sit with the presumed moral high ground and judge those who are less fortunate than yourselves; claiming people like me, are not prudent, and that the market should be allowed to self-adjust, but the reality, the human cost is far more painful than I think you all realise! The human cost! In May 2008, I was made redundant, and as you can imagine, I am concerned about losing my family home; a home that is shelter to my wife and our two year old daughter. I do not consider myself reckless - I took out a 90% mortgage that I could afford (3x salary) with a responsible lender (Nationwide). Additionally, I also secured MPPI and Lifestyle Protection Insurance, so as cover my household bills and my loan for the family car. After using up all my savings and redundancy pay, these insurances started paying out, but they run out in September this year! Naturally, I am scared. Scared I might lose the roof over my families head because, try as I might, I am unable to find suitable work - and believe me, I am not sitting on my bottom waiting for work to find me nor waiting for the government to bail me out – that’s just demeaning and demoralising! Fearful, that even if I get a job (with lower pay that I was on), we might not be able to negotiate a repayment schedule that we can afford with my mortgage lender. Worried that as we are almost definitely in negative equity, if our home is repossessed, the value attained for it (presumably at auction) will be far less than our mortgage taken out on it, so we will end up not only homeless, but owning the lender tens of thousands of pounds! My house is not an investment, it is a home for my family, and we want to stay in it. We may never be able to afford something like it again, so having depleted all our savings, and when the insurances we have been paying for over the years stop paying out to cover out mortgage, and having paid my fair share of tax over the past 14 years I have been in work, I will have no shame in receiving help from the government whilst the economy recovers and hopefully enables me to find a job I can do that covers my outgoings. I actually think most of you would do the same if the same happened to you!
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I think the key phrase here is that people have to be weaned off the debauchery they have indulged in for the last 10 or more years because the debauchery bit is an instrument of successive government policy to keep growth going , and i think, ultimately to keep them in power. Mrs thatcher relaxed credit controls for people to spend more ,but even in spite of the brief spike of 15 % interest rates ,which are also a new labour economic instrument it helped to keep the overall level of debt down to something sensible . now its just gone crazy whilst enjoying the world benefit of low interest rates ( and no , this isn't an advert for the tories because right now they seem to be clueless , and it seems would want a certain amount of " eat red meat sucker" (( because i'm not - reference john major et al )) Some people say that others should n't have taken on the debts they have but there certainly was a lot of shoving down your throat , pressure to conform ,and be one of the lads i.e. having all those goodies including the house : n x times your salary /wage . - but that's what a lot of people did , and its not easy to get off it , so (i'm disappointed to say ) a lot of writers here on the site are being very selfish in saying that people should go cold turkey . i think they should see the consequences of that and after all we do like to put ourselves above animals by virtue of those extra circuits we have in our brains. i think this time its going to be a long slog to get out of this mess , some hard lessons learned , and as a manufacturer see the familiar story coming out that because it all became too expensive from abroad because of the crashing pound , we should make it ourselves . Well i 've got news for the government ,- they (and rather more than the tories ) smashed industry into oblivion so ther's less chance we can make it ourselves and more chance we' ll do without
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Lucky for us my OH has got a new job which he starts on Monday
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23 January 2009