Mortgage rescue scheme 'in trouble'

19/02/2009

A major scheme launched by the government to help homeowners struggling with their mortgage repayments has run into trouble.

The scheme, fuller details of which are scheduled be announced by ministers on Friday, will work by borrowers being given the right to defer part of their interest payments for a maximum of two years.

In this way, their repayments burden will ease and they will be less at risk of repossession.

However, with house prices still falling, concerns have been raised at banks that customers could be put into negative equity by the scheme - with the value of their mortgage loan greater than the value of their home.

This group could then sue their mortgage lender for mis-selling, Citywire reports.

In order to lessen the risk of these legal actions, the Treasury is said to be drawing up plans to make taking independent advice mandatory for homeowners who want to participate in the scheme.

This would weaken any claim the borrower had for being mis-sold the loan.

Kevin Still, EuroDebt's director, said: "We welcome the general concept of people struggling with their mortgage payments to take independent advice, whether they are eligible for the various rescue schemes or not. It is important that lenders and borrowers are able to review the various options available when it becomes clear that the borrower can’t meet their contractual commitments.

"In many instances this may avoid a re-possession order. The lender wants to see information presented in a uniform and independently verified manner, which can be a costly process for the lender to do this themselves, and the borrower wants to feel that they are genuinely being listened to based upon the circumstances presented. EuroDebt and a number of debt advice providers offer this type of facilitation process free of charge with regard to dealing with priority creditors."

Figures released by Property Portfolio Rescue earlier this week suggested that the number of "desperate sellers" looking for quick sales of their property as they struggled with mortgage payments rose by 118 per cent in 2008.

Tags; Housing Debt and Bills, Young Family Finances, Retirement Money Problems,

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