Government plans to help struggling homeowners swung into action last week, but will they make any difference?
After the bailout of the banks, now begins the rescue of their borrowers.
The government has come up with a range of proposals intended to help out those who can’t pay their mortgages. One scheme, where borrowers can defer interest on their mortgage for two years, was announced at the end of last week. Another, where housing associations buy the homes of people in danger of repossession or give them loans to repay their debts, started to take applications last week.
Rent or loanUnder this second scheme councils will take applications for help from the most vulnerable people, including families with children, the elderly, people, with disabilities or mental illnesses and pregnant women, who cannot pay their mortgages. There will be caps on their income set at regional level, they must not be overcrowded and unable to trade down to a cheaper home. Eligible homeowners can either sell their home to a housing association at its current market value, use the proceeds of the sale to clear their debts and rent it back, or get an equity loan from the association on part of their home to reduce their mortgage payments to a manageable level. The first 60 councils started the scheme on 1 December and the rest will join in from January.
The scheme, designed by government with the National Housing Federation and Council of Mortgage Lenders, is designed to prevent homelessness caused by repossessions amongst people who would be a priority for housing help from their council were they to become homeless.
EquityTo qualify for the scheme, homeowners must also have equity in their home. Lucy Thornicroft, policy officer at the National Housing Federation, explains that the equity restrictions are there to ensure that there is enough equity in the home to repay the homeowner’s mortgage and other debts when it is sold or via the equity loan. However some of the people who need the scheme most will be in negative equity and therefore ineligible for it.
Going into OrbitOrbit Housing, one of the first to start up the scheme with local council Broadland, says it will put in £5m matched by the same amount from government. They expect to help about 150 people. People selling their home to the association would have to have at least 5% of equity in their property but not more than 25% and they would rent it back for about 80% of the market rent. Homeowners with more than 25% equity in their home can joint the shared equity scheme and the maximum loan value is 75 per cent of the capital value.
A spokeswoman for Orbit says the association will get a £3600 administration fee from government for each family it helps. It would also have to bring any homes it bought outright up the decent homes standard. There is a review after six months when the housing associations involved can decide whether they want to increase or scale back the number of cases they take on.
Thornicroft said the scheme has been designed to protect the housing associations from financial risk. “It is quite a small scale scheme and over 20 housing associations, if not more, are involved in delivery so there will be a relatively small number of transactions and the risk will be shared.” She added that housing associations would be able to refuse to buy a home if they had concerns about it.