CML news & views

Tomorrow, the home-owner mortgage support (HMS) scheme – described by the government as a “final backstop” intended to provide help for borrowers in difficulty – celebrates its first birthday. Launched on 21 April 2009, HMS is one of a number of measures introduced by the government, including mortgage rescue and improved payments of income support, to help borrowers during the recent period of rising mortgage arrears

In December last year, the housing minister, John Healey, said that backstop schemes introduced by the government meant that thousands of families were receiving “crucial help” to make their monthly mortgage payment affordable until their income recovers.

At that stage, Mr Healey said that 150,000 families had managed to arrange formal repayment agreements on a flexible basis, 74% more than a year earlier. He said that 6,000 borrowers were on terms equivalent to the HMS, meaning that only 15 had so far needed the formal backstop of the HMS scheme.

HMS enables eligible borrowers to defer a proportion of their interest payments for up to two years, with the government underwriting a proportion of the lender’s ultimate risk of loss. More information about the scheme can be found at Directgov.

When HMS was launched last year, we welcomed it as a measure designed to reinforce existing lenders’ policies of forbearance for borrowers facing temporary difficulties that could be resolved over time. 

One benefit of HMS – and other government schemes – is that they have encouraged more borrowers to talk to lenders and advice agencies about payment problems at an earlier stage. That enables lenders and borrowers to work out a solution, often without recourse to government schemes.

As we predicted a year ago, some lenders have chosen to participate in HMS, while others have concluded that – while they support the principle of reasonable forbearance – they prefer to help borrowers outside the scheme and without calling on government financial support.

When the HMS was launched, we were expecting 75,000 cases of possession in 2009. In the end, a combination of low interest rates, lender forbearance and government support helped contain the number of possession cases last year at 46,000.

At the outset, we said that while HMS is a helpful tool, we did not expect that the guarantee would be triggered in many cases, especially in a low interest rate environment. As the HMS celebrates its first birthday, we continue to see it as simply one means to an end. As we said a year ago, what matters is not whether lenders are using the HMS, but how they are working with their borrowers through periods of periods of difficulty that can be resolved – ensuring that possession remains a last resort.