After first announcement last November and five-month negotiation, government finally launched the Homeowners Mortgage Support Scheme (HMS) to help homeowners who suffer from income and financial problem. Yet, the scheme was launched without much support from the major mortgage lenders.

Background of HMS

Housing Minister, Margaret Beckett, initially launched the HMS back in November to help homeowners who suffer from the fall of income from repossession. This scheme aims to defer their interest payment for up to two years. Margaret Beckett promised in November that the eight largest lenders that cover 70% of mortgage market would involve in the Scheme; yet, only a few of them are taking part as finalised in April 2009. This scheme that is treated as “immediate help” was only available on 21^st April 2009 after its first announcement in November last year with 5-month delay.

Eligibility to apply for HMS

Taken from Communities and Local Government, borrowers are eligible to apply for the scheme, only if they:

1.      Have demonstrated that they have had a temporary loss of household income from employment or self-employment of a scale which affects the household’s ability to make full mortgage payments, but which is not expected to be a permanent loss of income

2.      Have bought their home before 1st December 2008

3.      Are owner-occupiers (the scheme is not open to buy-to-let or investment properties)

4.      Have an outstanding mortgage of less than £400,000 and savings of less than £16,000

5.      Have a regular household income and should be able to make a minimum contribution of 30 per cent of the total interest payment with the rest of the payment being deferred for up to two years

6.      Have talked through other options with their lender and have been making regular payments for at least five months

7.      Have sought independent money advice

8.      Are not eligible for Support for Mortgage Interest (SMI)

Noted: the final decision on eligibility for (subject to the criteria set out above) and acceptance into the scheme remains entirely that of the lender.

Participants

Non-nationalised banks – Nationwide, Barclays, HSBC and the Santandar Banks (Abbey and Alliance and Leicester) – had agreed to participate when HMS first announced. However, after months of negotiation, the above banks refused to back the scheme. One of the biggest lenders, Nationwide, felt it did not need to offer the scheme to their customers because it already has offered a comprehensive practice for customers who are struggling from mortgage difficulties.

Similarly, the Building Societies Association has already extended its support to homeowners with practices equivalent to HMS; as a result, the only building society to sign up is the Cumberland. Furthermore, Government claimed that 80% of lenders including Lloyds TSB, Halifax and Cheltenham & Gloucester of Lloyds Banking Group, Northern Rock, Royal Bank of Scotland, NatWest, Bradford and Bingley and Clydesdale & Yorkshire Banks, are participating in the scheme.

Criticism

Grant Shapps, Shadow Minister for Housing, criticised that, “the small print reveals that most struggling families will not be eligible for any help from these schemes”*.

Shapps also criticised the delay of the Scheme as outrageous, since it “promised immediate help, yet take five months to put in place”. These five months costs more than 28,000 families losing their homes***.

The Conservatives suggested that the major lenders that have refused to take part in the scheme covered 55% of the mortgage market; thus, the claim made by the Government that lenders participating in the scheme is 80% of the mortgage market is, in reality, less than 50%.

Critics reported that the lenders were only given less than a week time by the Government to review and decide on the 200-page documents.

Borrowers are not accepted onto the scheme immediately once they have met all the strict criteria; lenders have the right to decide who can be covered by the scheme.

Conclusion

According to TimesOnline**, Council of Mortgage Lenders (CML) estimates 75,000 homeowners will lose their properties due to the increase in repossessions. The government and lenders are trying hard to protect and recover the property market under the economic recession. Nonetheless, Gillian Charlesworth from Royal Institution of Chartered Surveyors explained the situation of lenders’ rejection to participate in the Scheme and said, “given current market conditions, even those lenders who are holding back from joining the scheme will be reluctant to take on large numbers of repossessed properties which cannot be easily sold. As a result, many of them are already offering reduced monthly payments and increased levels of support without Government intervention”***. In this case, the numbers of repossessions this year might result lower than expected.