The latest data show that house seizures rose by a whopping 92% in the third quarter of 2008. However, these seven safety-nets may save some homeowners...
Today, City regulator the Financial Services Authority (FSA) released its latest mortgage-lending data up to the end of September 2008. These figures made for grim reading, particularly the following:
- The number of new cases of mortgage arrears has risen from a fairly constant 54,000 each quarter to 60,000 in the third quarter of 2008 (Q3/08), up a tenth (10%)
- At the end of Q3/08, there were 340,000 home loans in arrears, up almost a quarter (24%) on a year earlier.
- The proportion of mortgages in arrears rose from to 2.13% in Q3/07 to 2.92% in Q3/08, a rise of more than a third (37%).
- Most shockingly, the number of repossessions has almost doubled to 13,161 new cases in Q3/08, which is 92% higher than a year earlier.
Clearly, with the collapse of the housing and credit markets, more and more homeowners are having difficulty meeting their monthly mortgage repayments. Indeed, the government is frantic that repossessions could exceed the 75,740 peak recorded in 1991. Hence, working with lenders and other housing firms, it is desperately conjuring up ever-more ingenious ways to keep people in their homes.
Here are seven of the biggest safety-nets designed to assist struggling homeowners - you can judge for yourself whether you think any of them will work:
1. Mortgage payment protection insurance (MPPI)
Mortgage PPI meets your monthly mortgage repayments, usually for up to a year, if you are unable to work because of an accident, sickness or unemployment. This optional insurance cover is largely sold by mortgage lenders, which tend to charge around £6 for every £100 of monthly benefit when the `true' cost is around half this rate. For the record, two million of the UK's 11.7 million home loans are covered by MPPI, which comes to around one in six (16.9% of) households. Learn more about MPPI.
2. Income Support for Mortgage Interest (ISMI)
If you are a homeowner who is out of work and eligible to claim Income Support, then you can also make a claim for ISMI, which is a form of Housing Benefit for owner-occupiers. Alas, after the last housing crash had subsided, the government drastically cut both the scope of and entitlement to ISMI, dramatically watering down the value of this benefit.
However, as fears mount over the financial health of homeowners, the government recently beefed up ISMI. From this month, it has strengthened this safety net by slashing the no-benefit period from 39 weeks to 13 weeks, and doubled the size of home loan on which ISMI is assessed from £100,000 to £200,000. Learn more about ISMI.
3. A two-year interest holiday (the Homeowner Mortgage Support Scheme)
This heavily-publicised mortgage-rescue scheme allows homeowners who have lost their jobs to take a payment holiday from mortgage interest for up to two years. Anyone qualifying for this scheme will have their mortgage interest added to their home loan. Ultimately, if they are unable to pay this deferred interest, then the government becomes liable for it.
What's the catch? Only those on middle incomes with a mortgage of up to £400,000 and savings under £16,000 will be eligible.
As yet, the full details of this scheme have not been worked out but, on first glance, I expect it to be an administrative and logistical disaster. Learn more about this scheme.
4. A six-month breather
Some mortgage lenders (notably Royal Bank of Scotland/NatWest) have agreed to double their grace period -- the time delay before they bring legal action against defaulting borrowers. RBS et al will no longer begin legal action against borrowers until they have built up six months of arrears. This pledge will last until at least the end of this year, as I revealed here.
5. Treating customers fairly
City watchdog the Financial Services Authority (FSA) is increasingly concerned at some lenders' willingness to repossess first and ask questions later. Hence, the FSA has written to all mortgage lenders, reminding them of their duty to treat customers fairly, and warning that "repossession should be a last resort". With any luck, this will improve industry practices and put a brake on trigger-happy lenders.
6. Sell to a housing association
The government has pumped £200 million into a scheme whereby struggling owners can sell their homes to local housing associations in order to avoid repossession. The idea is that under threat of repossession can sell some or all of their more to a local housing association and stay put by paying rent. This scheme is already under way in England, with local authorities in Wales, Scotland, and Northern Ireland are set to follow suit. However, the government estimates that will help no more than six thousand homeowners, which comes to over £33,000 per case. Ouch!
7. `Sale and rent back' schemes -- AVOID
Desperate homeowners who are deeply in arrears may seek the help of one of the scores of `sale and rent back' companies which have sprung up in the past two years. Frankly, many of these firms are nothing more than vultures, preying on vulnerable owner-occupiers. As we warned in this article, they buy homes at a substantial discount to market prices, say, a third (33%) off. What's more, some offer only a one-year tenancy to the former owners, which enables them to be turfed out after twelve months. My advice is to avoid these firms like the proverbial plague!
What's the point?
You may be reading this and thinking: if you don't lose your home when you don't pay your mortgage, then what's the incentive for you to be a good payer? Especially when you consider who will foot the bill for these initiatives. In most cases, the answer is... taxpayers.
Ultimately, you, me and Joe Bloggs will be responsible for bailing out reckless and feckless mortgage borrowers, as well as the deserving and vulnerable cases. Is it fair that sensible savers and cautious renters should pay more taxes in order to bail out those who lost out in the great housing gamble? I must say that I think not!
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