Debts & Loans

The Government and the Bank of England are trying to ride to the rescue of the housing market. But will slashed interest rates and a new mortgage support plan do enough to prevent misery for thousands of Welsh families?

Question: I’m worried about losing my job and then losing my home. Will the Homeowner Mortgage Support Scheme help me out?

Answer: The Government clearly expects a rise in unemployment and is determined to prevent a rush of repossessions.

If you experience a sudden fall in your income you may well be able to defer some of your interest payments on your mortgage for up to two years.

These will be added to your outstanding mortgage debt and have to be paid off when your finances improve.

Question: How do I know if I qualify?

Answer: The precise details are still being hammered out. However, it is aimed at people who would not qualify for other Government help, such as households where one earner is made redundant but the other continues working, or where a homeowner loses only part of their income through reduced shifts.

Question: I took out a big mortgage for the family home. Will I be covered?

Answer: Probably. The scheme will cover mortgages up to £400,000.

Question: Which lenders are taking part in the scheme?

Answer: Halifax Bank of Scotland, Nationwide, Abbey, Lloyds TSB, Northern Rock, Barclays, Royal Bank of Scotland and HSBC have all signed up – they represent 70% of the market. Monmouthshire Building Society and Principality are both waiting to see the full details of the scheme.

Question: I’m already in trouble and need help. When does the scheme begin?

Answer: It should be up and running early next month.

Question: Hang on a moment! How much are taxpayers having to fork out to help people with mortgages they can’t afford?

Answer: The Government has guaranteed that lenders in banks and building societies will not lose money if borrowers are later unable to repay the debt.

Question: So hard-working people are footing the bill? This sounds like another bail-out.

Answer: It has not been said how much the scheme will cost but it is estimated the Government will take on around £1bn of liabilities.

Question: What other help is there for those of us who are struggling with our mortgages?

Answer: There is the £200m Mortgage Rescue Scheme. Homeowners can sell some or all of their home to a social landlord and rent it back again.

Plus, the Department for Work and Pensions is reforming its Income Support for Mortgage Interest initiative so benefit kicks in after just 13 weeks and covers interest repayments on mortgages of up to £200,000.

Question: Is the Welsh Assembly Government doing anything?

Answer: Yes. There are grants for housing associations to buy a share of your mortgage or buy your property outright and then rent it back to you.

Question: Does this scheme work?

Answer: In 2007-08, the Assembly Government provided £850,000 to help 15 households to remain in their homes. A further £5m was provided in June.

Question: It’s so confusing and I’m desperately worried. Who can I turn to?

Answer: Shelter Cymru, National Debtline and Citizens Advice Bureau will all be able to offer expert advice.

Graeme Yorston, chief operating officer at Principality, said: “Repossession is always a last resort and we urge borrowers to get in touch with their lender or seek free and independent financial advice as soon as they begin to experience difficulties with their repayments. At Principality we will work hard to agree an effective, long-term solution for borrowers who are struggling financially.”

He added: “We have always taken a prudent and sustainable approach to lending, based on an affordability model. We do not lend money against the asset, we lend on the basis that the borrower can afford the loan.

“Our focus now is to help those customers who can’t keep up their repayments due to a change in circumstances, such as loss of income, as we enter the recession.”

Question: The Bank of England has cut interest rates from 3% to 2%. So, does this mean I’ll be paying less for my mortgage?

Answer: That’s what the Government wants to happen, but the banks will have to play ball.

Bankers only passed on the full 1.5% cut to customers last month after coming under extreme pressure.

Question: I have a fixed-rate mortgage – will I see a reduction?

Answer: Alas, no. People on fixed-rate mortgages were protected from interest rate rises, but the flip-side is they don’t see any benefit from cuts.

But as John Heron of Paragon Mortgages says: “I’m sure a number of those that took out a long-term fixed-rate at the start of the quarter are regretting the decision following the recent Bank of England Base Rate cut, but at least they will know exactly what their monthly mortgage payment will be for the chosen period. There are advantages and disadvantages to long-term fixed-rate deals and borrowers need to be comfortable with the length of time that they are signing up for.”

Question: But if I have a tracker mortgage, surely I’ll get the full cut?

Answer: Check the small print. Some tracker deals have a floor below which the rate won’t sink.

Many bankers never expected to see rates like these in modern times. To put it in perspective, it was 1951 and King George VI was on the throne the last time rates were this low.

Some pundits believe a zero rate is a real possibility.

Question: But the Government now owns stakes in so many high street banks! Surely Gordon Brown can crack a whip and make the bankers jump into line?

Answer: This is uncharted territory in British politics and banking. Nobody knows how the relationship between Government and banks will evolve, but it’s unlikely that financial bosses will take kindly to orders from ministers.

Question: So what’s going on?

Answer: The biggest worry for bankers is that their cupboards are bare and their top priority is building up those reserves again.

A straightforward way of doing that would be to collect more profit from mortgages – and this is why many bankers will be reluctant to pass on the full interest rate cut.

If it becomes cheaper for them to get cash, they stand to increase their profit margin when they loan it to you. There is little incentive for them to give you a “cheap” mortgage.

Question: Is there no good news?

Answer: Actually, this is not a terrible time to be a saver – despite the cut in interest rates. Your money is the lifeblood of the banking system and the people running it know you will find somewhere else to put your cash if they can’t offer you a decent return.

Question: Surely this is a brilliant moment for me to buy house?

Answer: Will you be banging your head against a wall if the value of your home drops by 20% in the next 12 months?

Question: I’m not looking for a quick sale, just a good deal on my mortgage. Surely there must be one out there?

Answer: You’ll have no trouble finding a bargain if you’re fortunate enough to have sufficient cash to lay down a 40% deposit. But few of us have such an eye-watering amount so most attractive deals are – sadly – out of reach.