Gordon Brown could not wait to upstage the Queens’ Speech by releasing his governments’ latest initiative to the MPs in the House of Commons. He announced that mortgage borrowers who suffered from a drop in income would be able to defer their mortgage interest payments for up to two years.
This initiative was agreed by the following lenders, Royal Bank of Scotland, Halifax & Bank of Scotland, Northern Rock, Lloyds TSB, Barclays Bank, Abbey and the Nationwide. These lenders are responsible for 70% of all mortgage lending in the UK.
The Government’s latest initiative will cover any homeowner with a residential mortgage up to £400,000. The mortgage interest payment would then be rolled up for up to two years and then added to the mortgage. In the event that the borrower was unable to keep up their mortgage repayments and their home was repossessed; the Government would stand guarantor for 2 years interest payment and the mortgage lender would not lose out financially.
I do not want to take away any of Gordon Browns’ thunder. But let’s consider some circumstances.
- A £400,000 interest only mortgage at 6% would add £48,000 to the mortgage at the end of 2 years or it will have increased the mortgage by 12%.
- As property price continue to nose dive the property could be in negative equity.
- Homeowners could actually find that it might be better being repossessed sooner rather than later.
- It takes no account of the other debts like credit cards, loans, car leases or other buy-to-let mortgages that homeowner may already have.
- Also it takes no account of the homeowners overall affordability in the future to afford this new increased mortgage with future income levels.
- A cash strapped homeowner could find themselves running up more debt which would now be secured against their property.
- This is a government manoeuvre to massage the repossession figures so that they don’t have the highest repossessions in history for the next few years.
- This initiative will not cover a homeowners who has a secured homeowner loan that they are unable to pay due to the same circumstances and they could still have their home repossessed.
- Who will be responsible for providing the financial advice about the long term financial implications of deferring a homeowner’s interest payment?
- This is a political scheme designed to advance Gordon Browns chances in the polls and at the next elections. Sneaky!
- It has been calculated that the cost of guaranteeing the homes that will be repossessed in the future will cost us the taxpayer around £1billion.
- I wonder how this will impact on future remortgages for these homeowner in the future, they certainly will not be arranging any quick mortgages.
- The success of this will be in the finally detail that is released by the government and the way the banks interpret it.
The Financial Services Authority (FSA) is very keen for the mortgage industry to “treat customers fairly”. The government has also said in the Queens’ Speech that they want the banks to introduce “treating customers fairly”. Lets hope that anyone applying for this government initiative will be treated fairly. I hope that this is not a method to massage the governments repossession figures for 2009 to2010 and to keep the banks mortgage book looking healthy at the cost of the homeowner who has lost part of their income or been made redundant and is unable to find new employment.
This initiative has the potential to be a homeowner’s worst nightmare as it could just extend the inevitable of repossession for two more years. Whilst on the other hand it might just be the tonic required. What ever happens make sure that someone gives you written advice about deferring your interest payments for two years and what the consequences will be. For external reviews and comparisons, please take a look at Specialist Mortgage Lenders.
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