Brown: Mortgage holiday will make people feel more secure » Housing » 24dash.com

Prime Minister Gordon Brown said today the Government's plan to give struggling homeowners a two-year mortgage payment holiday would make people "feel more secure in the downturn".

He said that his Government wanted to "do everything we can to reassure people and to help those who are now worried about being repossessed or falling behind with their payments".

He was at the Citizens Advice Bureau office in Pimlico, central London, to talk to advisers who have been facing queues of people worried about their finances.

He told them that the new Homeowner Mortgage Support Scheme would be available to people who "suffer a loss of income or their partner suffers a loss of income" and would enable them to defer a proportion of the interest payments on their home loan for up to two years.

Speaking shortly after the announcement that the Bank of England has decided to cut interest rates once more, he said: "I welcome the fact that interest rates have come down. Now that they have come down and petrol has come down and we are hoping that gas and electricity will come down shortly, combined with the help we are giving people I think it will help homeowners to feel more secure."

He denied reports that banks were taken by surprise by the announcement of the scheme yesterday, saying: "The eight major lenders that are responsible for more than 70% of the mortgage market are fully behind the plans. We are now working on getting the remaining 30% signed up."

He said that full details of the scheme will be "published in the next few days".

He was joined by Housing Minister Margaret Beckett who later spoke to staff about the sorts of problems they are dealing with.

Mr Brown told staff that the deferred payment scheme was designed to help those who do not qualify for other Government help and lose their income either through redundancy or a reduction in their hours.

It will cover mortgages up to £400,000.

The deferred payments will be added to their outstanding mortgage debt, which the borrower will pay off when their finances improve.

The move could leave the Government with liabilities of about £1 billion, as it has guaranteed that lenders will not lose money if borrowers are later unable to repay the debt.

Announcing the move yesterday, Mr Brown said: "Hard-working households that experience a redundancy or severe loss of income as a result of the downturn will be able to defer a proportion of their interest payments for up to two years as they get their family finances back on track."

The Government has said that it plans to work with lenders over the coming days to develop the scheme in detail, with a view to it being up and running in the New Year.

It builds on other Government initiatives to help prevent families losing their homes, such as the Mortgage Rescue Scheme under which people can sell some or all of their home to a social landlord and then rent it back.

The Department for Work and Pensions is also reforming Income Support for Mortgage Interest so that the benefit kicks in after just 13 weeks for eligible homeowners and covers interest payments on mortgages of up to £200,000.

The announcement received a broad welcome from consumer groups, industry bodies and lenders.

Adam Sampson, chief executive of housing charity Shelter, said: "This is great news for many thousands of homeowners struggling to keep a roof over their head this Christmas, and the millions more who fear what might happen if they lose their jobs."

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: "With the threat of repossession likely to rise significantly over the next year as unemployment rises, measures such as yesterday's announcement to provide Government guarantees for mortgage interest payments are absolutely vital.

"By limiting the amount of distressed selling, it will also restrict the amount of new property flooding the market, which in turn will provide some measure of support."

But industry body the Council of Mortgage Lenders gave the scheme a more cautious welcome.

It said it would not be for everyone, and would need careful development with lenders and itself to ensure it was properly targeted.

The group said: "It is not a charter for 'won't pay' borrowers to avoid their responsibilities, but it will provide welcome reassurance to the vast majority of borrowers that the Government and lenders are doing all they can, in partnership, to help those customers who 'can't pay' due to a change in circumstances as we enter a recession."

The initiative comes as it emerged the CML had told ministers the number of homes which are repossessed could soar to 75,000 next year.

But the CML stressed it had not yet finalised its predictions for repossession numbers for 2009, adding that it was deliberately holding off doing so while new policy initiatives in the area were being announced.

Repossession levels are increasing in the face of the economic downturn and rising unemployment, with 11,300 people losing their homes in the third quarter of the year, 12% more than in the previous three months.

Mr Brown also announced today that the current voluntary code of conduct for banks would be made statutory.

City watchdog the Financial Services Authority is running a consultation on bringing the existing voluntary code into its regulation.

The change would mean that banks who fell foul of the code, such as by not treating customers fairly, could face a range of sanctions, including fines.

Angela Knight, chief executive of the British Bankers' Association, said: "We have been in discussion with the Government and FSA for some months on giving more certainty to all stakeholders by putting the Banking Codes on to a statutory footing."

Mortgage lenders welcomed the scheme but said they were waiting for more details to see how it would operate in practice.

Many said the initiative would simply be a continuation of the work they already did with borrowers who were in difficulty to help them stay in their homes.

The measure should provide some support to the housing market as it could prevent a flood of repossessed properties being put up for sale, which would further depress prices.

But economists said the move would not end the current housing market downturn, which has been caused by stretched affordability and the mortgage shortage.

Ed Stansfield, property economist at Capital Economics, said: "New measures aimed at limiting the number of people losing their homes are unlikely to bring the housing market correction to an end, let alone bring about a revival.

"But, they could help to slow the pace of house price declines next year. However, if that simply extends the housing market correction, it is debatable whether that will bring any net benefits to the wider economy."