The State Mortgage Rescue Scheme

By March 23, 2009Articles

According to the Council of Mortgage Lenders, a staggering 500,000 families in the UK will fall into mortgage arrears in 2009 and repossessions are expected to reach 75,000 – a 67% increase on 2008. As a result, the government have brought in a number of measures to help homeowners through the current tough economic conditions, and one of these is the State Mortgage Rescue Scheme.

  • This scheme will help those at risk of becoming homeless due to unexpected changes in their circumstances (i.e. redundancy), and involves one of two options:Selling a proportion of equity (anything from 25-75%) to a registered social landlord, in return for them paying off a proportion of the mortgage (meaning lower, more affordable mortgage payments).
  • The landlord pays the mortgage off in full and thus the homeowner becomes a tenant, paying an affordable rent. This option allows families who are at real risk of repossession to remain in their own homes, albeit as a tenant.

Please note that the scheme does not offer help to those in negative equity and applies to England only: there are similar schemes operating or being made available in other parts of the UK.

The £2 million pound scheme was introduced on the 16th January 2009, and aims to make repossession avoidable for those eligible. There are conditions attached to the scheme, with families needing to be classed as ‘priority need’ in order to benefit.

Around 6,000 households are expected to be helped over the next two years, and, sadly, this means that over 90% of the 75000 households expected to get into difficulties with their mortgage this year will not be able to qualify for the scheme. However, the government has brought other measures in, such as the Homeowner Mortgage Support Scheme (see below), to help such households.

Regarding eligibility for the Mortgage Rescue Scheme, those classed as priority need are entitled to help. Such people must be on a salary of less than £60,000 per year and fall into one of the following categories:

  • A pregnant woman
  • Those who have dependant children
  • Those who are vulnerable due to old age or a physical and/or mental disability

Other conditions also need to be met:

  • Debt counselling should have been sought for any other outstanding debts and a suitable repayment plan agreed
  • All other options regarding mortgage repayments/arrears must have been discussed with your lender
  • Your home must not exceed the value as specified for your region (contact your local authority for details)
  • You must demonstrate a clear need to remain in your home and the home must be suitable for your needs
  • The scheme does not help homeowners with second homes, including any abroad
  • Any equity in your part of the home must be enough to pay off your outstanding debts

Courts, advice agencies, and lenders can all refer you to the local housing authority for assessment, and, if eligible, local authority money advisors will help you work out the best plan of action, depending on your personal circumstaces. A distinct advantage of this scheme is that financial advice will continue to be offered, even after a conclusion has been reached.

As mentioned, the scheme is not suitable for everybody, but there are other kinds of help available for those struggling to pay their mortgage: the Homeowner Mortgage Support Scheme, in conjunction with major lenders, allows homeowners experiencing major financial problems to defer a proportion of their mortgage payments for a maximum of two years, giving them time to recover (terms and conditions apply) and the waiting period for entitlement to Income Support for Mortgage Interest (ISMI) has been reduced from 39 weeks to 13 weeks.

Steven Hilton, Media Relations Manager of the National Landlords’ Association, says;

“Although these Government schemes must be welcomed, if the end result is to prevent homelessness and the inevitable pressure on limited social housing, then why can landlords who are experiencing financial difficulty not get some help so that their tenants can remain in situ? The bottom line is that we’re all in this together. The Government, with regulators, should be looking at ever more creative ways to stop families losing their homes and this means engaging private landlords too.”

If you are experiencing problems paying your mortgage, your first point of contact should be an agency that provides free, impartial advice, such as the Citizens’ Advice Bureau or the National Debtline: these will be able to offer you advice regarding your options in what is often a stressful and confusing time.

We would like to hear your thoughts as to whether this scheme is likely to be successful?