Homeowners who fall behind with their mortgage repayments after losing their jobs or suffer a drop in income can take up to a two-year repayment holiday under a new Government backed scheme.

Announced in the Queen’s Speech, banks and building societies making up 70% of the mortgage sector have signed up to the scheme.

The Government and lenders still need to iron out the final detail but the outline of the plan is:

·      Mortgage payers who are made redundant or face a significant income loss will qualify

·      Loans up to £400,000 are covered by the scheme

·      Lenders will manage the scheme and make decisions based on common guidelines about granting repayment holidays

The scheme comes in to force in the New Year.

By then the details should be clearer, like exactly what a ‘significant loss of income’ amounts to and whether the self-employed are also covered.

The objective is to reignite confidence in the housing market and reduce the number of repossessions.

The Council of Mortgage Lenders, that represents the UK’s bank and building society lenders, speculated that repossessions could rise to 75,000 next year. The CML estimates that repossessions will end up at about 45,000 properties for 2008.

The CML has welcomed the government’s safety net scheme, and promises that ‘won’t pay’ borrowers will not be able to avoid their responsibilities.

“Instead, it will provide welcome reassurance to the vast majority of borrowers that the government and lenders are doing all they can to help keep people in their homes,” said a spokesman.

British house prices tumbled at a record 16.1% in November, according to figures released by the Halifax showing that prices fell 2.6% in November compared to October, and are now 16.1% lower than in November 2007.

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For More information on specific Banks use these links

• Alliance & Leicester
• Barclays
• Capital One
• Child Trust Fund
• First Direct
• HSBC
• Post Office
• Tesco Savings

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Tags: Borrowing, House Price, House Prices, Loans, Loss of Income, Mortgage Lenders, Mortgages, Repayment

With the last cheer leaders for the housing market finally giving up their rose coloured predictions for the housing market, the market fell at its fastest rate for many years in September according to Home track. September saw a fall of 1.3% according to the hometrack data.

The forward looking picture is equally bleak. With a leading economic think tank, the CEBR predicting that it could be as late as 2013 before prices start to recover from what they say will be a 25% peak to trough decline. But…there is a ray of light at the end of the tunnel.

The current issue with house prices was unsustainable when measured in normal ways….against anchors for house prices like wages, rental yields etc. There is no doubt that the elastic ban had stretched too far in the expansion of prices and now looks to be snapping back. Gordon Browns suicidal attempts to reflate the economy through a huge spending program could actually have a perversely positive effect for house prices.

His huge monetary expansion to bail out anyone who drives a Ferrari may lead to another housing boom….but in actual, not nominal terms. Once the current deflationary headwinds subside as the credit expansion roars into reverse, once the system is purged of all the mal investment and excessive risk that caused the issues we now face, there will be a different type of flation….inflation…and it could be severe.

The bank bailouts and the other measures to spend the economy out of the hole we find ourselves in, even though it’s absolutely discredited by most thinking economists, will force inflation into the system a couple of years down the road. If that inflation feeds through into wages, which admittedly isn’t a given, it could provide a cushion under house prices as rental yields and home prices adjust to factor in higher wages.

If Darling and Brown get their sums wrong and the inflation gets out of control, it could push house prices up to very high levels and shrink proportional mortgage debt in nominal terms. Should this happen, house holders will be OK with their mortgage debts, but they might be hungry.

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Tags: Alastair Darling, Credit, Gordon Brown, House Price, Housing Boom