Confused.com’s Guide to the Homeowners Mortgage Support Scheme

• Guides
• Published: 04 Jun 2009 in Money and Mortgages

Is there hope for those unable to pay their mortgage?  

A Government scheme, launched the day before the 2009 Budget, will help people who lose their income stay in their home - even if they can’t afford their full mortgage repayments.

What is it, how does it work and who’s eligible? Confused.com takes a look.

The scheme

The Homeowners Mortgage Support scheme (HMS) enables people who temporarily lose some, or all, of their income as a result of being made unemployed, or due to reductions in overtime, to make reduced monthly mortgage repayments.

How does it work?

Homeowners struggling to pay their mortgage will be switched to an interest-only deal. This means they’re no longer repaying any of the money they owe, but simply covering the interest they’re charged each month.

Switching to an interest-only deal will reduce monthly repayments on a £150,000 mortgage, with a rate of 4.5%, from £843 to £563.

In addition, under the HMS, people who can’t afford their full monthly interest-only payments are able to defer up to 70% of their payments for up to two years. Meanwhile, the Government will guarantee the money for the lender if the borrower defaults.

Who’s eligible?

People who bought their home before December 1, 2008 and are owner-occupiers are eligible for the HMS.

They must have an outstanding mortgage of less than £400,000 and savings of no more than £16,000. People must also have had a regular household income, been making regular payments for at least five months and be able to pay at least 30% of their interest each month.

Who can’t use the scheme?

You can’t use the scheme if you own more than one home, or if your income is unlikely to return to its previous level, for example if you have a long-term illness.

People who have Mortgage Payment Protection Insurance are also barred, as are those claiming Jobseeker's Allowance. This is because they’re able to claim support for mortgage interest instead.

Lenders may also turn you down if they think you won’t be able to keep up with your monthly payments, even if they’re reduced.

Is there a catch?

While the scheme will provide a lifeline for some people in danger of losing their home, it’s not something that should be entered into lightly. Anyone taking advantage of it should receive financial advice.

Homeowners still have to repay the money they owe, plus interest, at the end of the two years. The risk is, their property may have fallen in value during that time.

As a result, people who are unable to get back on their feet financially could lose their home at the end of the period, and the amount of money they owe could increase significantly.

If their home is not worth enough to clear their arrears, they will continue to be liable for any outstanding debt, even once their property has been repossessed and sold.

Which lenders are taking part in the scheme?

Lloyds Banking Group, whose brands include Halifax, Cheltenham & Gloucester, Bank of Scotland and Birmingham Midshires, as well as Royal Bank of Scotland/NatWest, Northern Rock and Bradford & Bingley will all take part in the scheme immediately. A number of other lenders plan to do so as soon as possible.

Barclays, HSBC, Nationwide, Abbey and Alliance & Leicester aren’t taking part in the initiative. They claim they already offer similar, or better, support to customers who get into difficulties.

What should I do if I’m having trouble paying my mortgage?

If you run into mortgage problems contact your lender as soon as possible. There are a number of steps lenders can take to help make your repayments more affordable. Even if you don’t qualify for the HMS, there are other Government initiatives which may help you.

If you’re struggling with your mortgage, see Confused.com’s 5 Ways to Keep Repossession at Bay.