Help for struggling homeowners

If you're panicking about how you'll meet your mortgage payments could the government's Mortgage Support Scheme help?

Figures from the Office of National Statistics (ONS) have revealed that the number of people out of work in the UK rose 177,000 between December and February to a whopping 2.1 million.

And, of course, one of the most worrying effects of losing your job is being unable to meet your mortgage payments. No wonder so many of us cite money troubles as the reason we have trouble sleeping at night.

Help is at hand

But if you are seriously worried about losing your home due to being unable to meet your mortgage payments, you may be able to benefit from a government scheme.

Homeowners Mortgage Support Scheme

Named the Homeowners Mortgage Support Scheme (HMS), this newly launched (although long awaited) initiative by the government is aimed at helping homeowners stay in their homes during hard times.

Essentially, if your mortgage is with one of the lenders that have signed up to the scheme and you fall into financial difficulties, you'll be able to make reduced mortgage payments and defer the rest for up to two years.

The government will then guarantee 80% of your foregone interest repayments if you should eventually default on the mortgage.

So how does the scheme work?

For a start, it should be made clear that the scheme is designed to help a homeowner who has temporarily lost part of his/her income keep his home - for example, if one partner had lost his job while the other is still working.

Homeowners who apply for HMS will probably first be referred to an independent money advisor such as the Consumer Credit Counselling Service. They will explain how the risks and benefits will affect you (such as how you will be adding to your debt and that your mortgage will cost you more, overall).

If you wish to go ahead with HMS (and your lender agrees) you'll be able to defer up to 70% of your monthly payments for up to two years.

Any money you put off paying will be added to the mortgage balance and will have to be paid back, with interest, when normal payments resume, which may mean increasing your payments or the length of your loan.

Your monthly payments will be re-negotiated according to what you can afford to pay and you will need to inform your lender should your financial situation change at any time. You'll also have a review after a year to see if you are still eligible for the scheme.

Of course, there are is pretty stringent criteria attached.

Who is eligible?

• You must be suffering a "temporary" loss of income (monthly payments can only be cut to 30% so you must have some income)
• You must be an owner-occupier with a mortgage of less than £400,000
• You must have less than £16,000 in savings
• You must have purchased your home before December 2008
• You must have talked through other options with your lender and have been making regular payments for at least five months

You won't qualify for HMS if:

• Your lender isn't offering HMS or equivalent support
• You own more than one home
• Your income is unlikely to return to its previous level (perhaps because you have a long-term illness)
• You have insurance that protects your mortgage payments
• Your lender thinks you won't be able to keep up with your monthly payments, even if they are reduced
• You are claiming Jobseeker's Allowance - in this case you can claim support for mortgage interest (SMI) instead

Has your lender signed up?

But even if you fit the criteria, the scheme may be no help to you if your lender is one of the many which hasn't even signed up.

Lenders in the scheme include:

• Lloyds Banking Group (which includes Halifax, Cheltenham & Gloucester and Bank of Scotland)
• Northern Rock
• Royal Bank of Scotland (which includes NatWest, Ulster Bank and the One Account, First Active UK and Direct Line)
• Bradford & Bingley (which includes Mortgage Express)
• Cumberland BS
• National Australia bank group (which includes Clydesdale and the Yorkshire banks).

Lenders that promise to offer HMS soon include:

Bank of Ireland (which includes Bristol and West)

• GMAC
• GE Money
• Kensington Mortgages
• The Post Office
• Standard Life Bank.

And yes, you've probably noticed that a good deal of these are owned or controlled by the State.

Lenders not taking part

But over half of the mortgage market's lenders have refused to sign up, with big high street names including Barclays, Nationwide, HSBC and Santander group (which includes Abbey and Alliance & Leicester) having shunned the scheme.

Why won't they sign up?

The costs to set up the scheme would be significant, of course, which may be a reason why some providers won't sign up.

But many of the lenders who won't join argue that they offer a similar level of forbearance to their customers anyway, which would mean their participation, should they join, would be limited.

Verdict

All said and done, anything that can help careful borrowers who genuinely suffer a temporary loss of part of their income keep the homes they've worked so hard for has to be a good thing. And most lenders, regardless of whether they've signed up with scheme promise to help their borrowers in times of trouble.

But it's important to remember that signing up would be a pretty drastic move that shouldn't be taken lightly. Deferring 70% of your mortgage payments doesn't make that debt disappear. By tacking it onto the end of your mortgage term it will rack up even more interest and mean your home will cost significantly more than you'd thought.

Plus it could add years to the loan's duration, which, depending upon your age could mean you're still paying off your mortgage when you're living on a pension.

But if you're seriously worried about being able to meet your mortgage payments this could be the help you need to help you stay in your home.

If you're concerned you can't meet your mortgage payments, don't bury your head in the sand - talk to your lender as soon as possible. You can find out more about the HMS scheme buy downloading this leaflet, and even if you aren't eligible, you could find there are other options that are more suitable for you.

Good luck.

More: Communities and local government website | DirectGov | Tackling the threat of repossession