Downing Street Says » Mortgage Scheme

The Prime Minister s Spokesman (PMS) began by giving the assembled press some background information on the significant announcement that the Prime Minister had made today on mortgages.

We had reached agreement with eight of the largest banks, accounting for 70% of mortgages, that individuals who faced a significant reduction in their income would be able to defer a proportion of their interest payments up to 100%, depending on their circumstances, for up to two years. We would be setting out further details of this in the period ahead.

At the moment, if you were a single earner household with a mortgage of up to 200,000 and you lost your job, you could claim unemployment benefit and you could then have your interest payment on a deferred basis paid for you through the Income Support Mortgage Interest Scheme. This only covered mortgages up to 200,000 and it only covered people who were out of work.

What we were targeting here in particular were middle-income households. There were currently many households that would not qualify or were not on benefits that could face significant problems when paying their mortgage interest. The reasons for this could include someone in a two-earner household losing their job and therefore facing a temporary reduction in their income. People could also rely on a significant amount of overtime that they might not be able to claim during a downturn. So what the Government was proposing was that the individual concerned would be able to defer their interest payments after agreeing the detail and the specifics with their mortgage lender. The Government would then guarantee to the mortgage lender the interest that was deferred.

At some point, that interest would have to be paid back, but what this was about was allowing people a breathing space at what was quite a difficult time. For people in work, they were seeing the cost of their mortgages come down and they were seeing inflation falling. However, there were many people in the country who were concerned about jobs and they were concerned about losing their homes as a consequence.

This was potentially having a damaging effect on confidence. The Government was effectively providing a form of mortgage interest insurance in order to give people the reassurance that they would have a breathing space and they would have time to reschedule and repay their mortgage once we were through this difficult period.

Put that people would only be able to take this up if they had a mortgage of below 400,000 and it would not be worked out on an income figure, the PMS said it was likely that we would also put a requirement on the amount of savings you had. Put that it would be means-tested, the PMS said that he wouldn t agree with that. The first port of call should be people s savings, but if a person found themselves in difficulty and unable to meet their interest payments, the Government would step in.

Put that the mortgage companies would be doing the filtering, the PMS replied that the individual would have a discussion and enter into an agreement with the mortgage lender, not directly with the Government. Asked about the repayment of the loan itself, the PMS said that what an individual might be able to do for example, would be to switch to an interest-only mortgage for this period. This would be something individuals would need to work out with their banks. What many banks had been saying was that it was not in their interests to enforce repossession and it was often in their interests to find a constructive way through.

Asked about the eligibility criteria and whether it would apply to someone on maternity leave for example, the PMS replied that we would set this out in detail, but it would probably only apply to involuntary reductions in income.

This would be targeted at many middle-income families who wanted to work, who wanted to stay in work and not go onto benefits and it was addressing the fears and concerns of many people in the country who feared losing their jobs and as a consequence their homes. Many people worried about having their home repossessed, but in practise, not that many people did have their homes repossessed. This would provide reassurance to the small amount of people that they might find themselves in the category of people who faced repossession.

Asked if the Government had to legislate for this, the PMS said that this was something the Treasury was working through at the moment. Put that the fact of paying interest on interest was up to the Government rather than the mortgage lenders and people may view it differently if they had to pay interest on the amount being guaranteed, the PMS said that we would have to enter into specific negotiations with individual banks on the nature of their schemes. Any negotiations involving individuals would be conducted by the banks.

Asked how quickly the scheme would be up and running, the PMS said we hoped to have it in place in the New Year. Asked how soon people would have to start paying the interest back after the two years had ended, the PMS said the exact detail of that would be something individuals would need to negotiate with their mortgage lender. Asked if the Government was saying that in two years time there wouldn t be such a danger of repossession, the PMS replied that what we were saying was that this was a temporary measure that we were introducing now to give people a two-year breathing space in order to help them get through this difficult time.

Asked if there was a danger of sending a message to people that the Government was expecting redundancies and unemployment to soar, the PMS said that this was an acknowledgement that people were concerned about their job prospects. Asked what would stop anyone from not paying their mortgage out of choice, the PMS said that people would have to negotiate terms with their banks and obviously the banks would have a good idea of what people s particular circumstances were.

Asked if the Government was expecting the banks to pick up the tab for any of this, the PMS said we were providing a guarantee to the banks and as he understood it, that reduced the amount of regulatory capital that they would otherwise set aside in order to deal with potential defaults in their loans. Asked about the proportions of interest people would be paying, the PMS said that it would be a proportion of interest that the individual would need to discuss with their banks, but it didn t have to be 100%.

Asked if the Government was saying that there would be no repossessions for the next two years, the PMS said that with the measures we were taking, we were making it more difficult for repossession to happen and making sure that it was a last resort.
Asked if there were any models for this elsewhere, the PMS said that he was sure there were, but he wasn t aware of any specific ones.

Asked for the banks taking part in the scheme, the PMS said that HBOS, Nationwide, Abbey, LloydsTSB, Northern Rock, Barclays, RBS and HSBC were all taking part and that accounted for 70% of mortgages. Asked if any banks had said no to the scheme, the PMS replied that we wanted all banks to take part and our initial discussions had been with the major lenders. We would be having further discussions with other lenders in the period ahead.

Asked what would happen if interest rates were higher in two years time and people had to pay the interest back at a higher rate, the PMS said that given the choice between paying interest back at a later date or losing your house now, he thought many people would choose to defer their interest payments.

Asked why the Government had decided to give the guarantee, the PMS said that we wanted to work constructively with the banks and we were doing this in order to help people who were in difficulties. We did want to see banks do more and we had seen the announcement from LloydsTSB this morning, but there were times when the market didn t work properly and the Government needed to intervene and that s what we were doing now.

Asked if the guarantee meant that there would be gridlock in the housing market as no one would want to move, the PMS said that fewer people would have their houses repossessed which some people might think was a good thing. In one sense, there would be fewer repossessed houses on the market, but the PMS added that such houses didn t make up a significant part of the market.

Asked if this was an attempt to shift the focus back on to the economy after the events of the last week, the PMS replied that the Prime Minister was making clear that the police should get on with their job and he would get on with his job, which was helping people through the downturn.

Asked when the negotiations with the banks took place, the PMS said that we had had discussions with the banks in the last few days and we were in a position now to make the announcement. Asked if the banks were willing participants, the PMS said that the banks were, otherwise they would not have entered into it.

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» Wednesday, December 3, 2008

Mortgage Scheme

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