CML news & views

In light of the upcoming cuts expected in the autumn spending review, last week’s independent University of York evaluation report undertaken for the Communities and Local Government (CLG) department identified many positive benefits to the Mortgage Rescue scheme. The government should be mindful of these in determining support structures for the future.

The two schemes to support homeowners in mortgage arrears were set up in 2008 by CLG with the CML and other interested parties helping with development. They followed the onset of the economic downturn when the threat of increased numbers of borrowers in arrears and homes repossessed looked to become a reality. As the report says, the government entered into these schemes to ”achieve the wider social and economic benefits of a well-functioning housing and mortgage market” and the schemes continue to contribute towards that goal. The report was commissioned to assess the impact and effectiveness of the schemes during their early days.

The schemes are:

• the Homeowners Mortgage Support (HMS) scheme that provides support to lenders to encourage greater levels of forbearance for up to two years for borrowers unable to access other support; and
• a Mortgage Rescue Scheme (MRS), which provides a structured exit from homeownership for vulnerable households who would otherwise have been entitled to homelessness assistance.

Housing Minister Grant Shapps has looked into both schemes since the coalition government came into power to ensure they offer value for money for both government and the public.

He said last week: "The most effective thing the Government can do for homeowners is to tackle the record deficit and avoid the need for rapid increases in interest rates. But there must still be effective help on hand for those struggling to pay their mortgages.

"So today I can confirm that the Mortgage Rescue Scheme and Homeowners Mortgage Support Scheme remain available as a last resort to homeowners facing the real threat of repossession.”

Homeowner Mortgage Support

The direct impact of HMS so far has been small. It only helped 32 borrowers between April 2009 and March 2010 but the indirect impact has been far greater. Over 33,000 borrowers have been entered onto lenders’ own forbearance arrangements within this period, including deferring interest equivalent to that on HMS. The publicity surrounding the scheme has meant that this figure is significantly higher than if HMS did not exist.

Unfortunately HMS is administratively cumbersome and the eligibility criteria are too narrow to be effective. Because of this, continuing support for the scheme is weak and the report concludes that HMS is unlikely to exist in its current form as a longer term safety net going forward.

Mortgage Rescue Scheme

MRS, however, has proved to be a popular intervention and the CML and many of its members have supported it since its inception. The scheme has proved more robust than HMS with 629 borrowers accepting an offer through the scheme between January 2009 and March 2010. After a slow take up following operational delays at the start, momentum is currently increasing.

The tangential benefits have far outweighed the direct impact. Over 20,000 households asked to be helped by MRS and as one of the stipulations of the scheme is that potential recipients get advice from an independent money adviser, around 15,000 received debt advice. On doing so, even if they were not eligible for MRS, they were encouraged to open a dialogue with their lender. Once that had happened, many found they were able to favourably renegotiate their mortgage payments without needing government assistance.

During the evaluation of the scheme, a number of MRS applicants were interviewed. The consensus was that they would rather be helped by MRS and become a tenant than lose their home through repossession. There was also evidence that many borrowers in difficulty would rather pass the ownership of their home to a housing association than continue to struggle as an owner.

There is widespread support for MRS from lenders and borrowers, and the CML believes it should continue as a permanent part of homelessness prevention strategies, especially given the potential for higher unemployment and higher interest rates in the future.