CML flags up threat from ISMI changes
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The Council of Mortgage Lenders is calling on the government to commit to maintaining its income support for mortgage interest scheme or risk rising repossessions.
In the latest issue of its News & Views, it says a commitment to maintaining government support for ISMI and mortgage rescue would reassure current and future homeowners and lenders alike.
The chancellor said that from this autumn ISMI would be paid at the level of the Bank of England’s average mortgage rate.
Currently 3.67%, this is significantly lower than the existing ISMI rate of 6.08%, a level that has been maintained since December 2008 as a means of providing additional support for borrowers in most difficulty.
The change is likely to come into effect in October after the Department for Work and Pensions has agreed changes with the social security committee and new regulations have been drawn up.
The DWP also needs to agree a process for how ISMI tracks the Bank of England mortgage rate, and a mechanism for triggering changes in payments. It is possible, for example, that the rate at which ISMI is paid may only change when the average mortgage rate rises or falls by 0.5%, thus avoiding the administrative problems associated with changing the rate too frequently.
The CML says: “Last year, the DWP reported that 204,000 households were getting mortgage loan payments through income support, jobseeker’s allowance or pension credit.
‘We estimate that more than three-quarters of borrowers receiving ISMI payments at the existing rate currently have no arrears on their mortgage – a clear indication that it is currently delivering the support intended for borrowers.”
It says paying ISMI at a significantly lower rate, as the government now proposes, will put the finances of these households under considerably more pressure. There is therefore a greater risk that arrears will rise again after October, and the performance of loans where the borrower is behind with payments may begin to deteriorate again.
It adds: “This could be accentuated over time by base rate increases and a rise in unemployment as a consequence of addressing the fiscal deficit.
“But we can still avoid a rise in mortgage possessions if borrowers continue to take a responsible approach to payment problems, seek advice on their options at an early stage and communicate with their creditors often involving several secured and unsecured debts outstanding.”
The trade body says any further reduction in access to ISMI will inevitably ensure that arrears build up more rapidly, and lead to an increase in the number of possessions.
The CML wants an early decision on the future of mortgage rescue schemes, both centrally and across devolved countries, as it believes they should be retained.
It also says it would be helpful to look at other ways in which this can be achieved. It says an example would be to review the homelessness rules for re-housing former home-owners to ensure they are working as intended. The CML says voluntary sales should not be viewed as borrowers intentionally making themselves homeless.
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Readers' comments (7)
Anonymous | 30 Jun 2010 9:21 am
it is obvious arrears and repossessions will rise, many lenders have SVR's above this rate, some substantially above, repossessions coming onto the market in large numbers will suppress rises in property values as in the late 80's early 90's, this is a high risk strategy by the government.
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Tony | 30 Jun 2010 10:25 am
I'm sorry, but if you can't afford to pay your mortgage...
I'm fed up of hearing about irresponsible lenders - and nothing about irresponsible borrowing. No one seems to put any money aside "for a rainy day" and people expect everyone else to "bail them out" when they're in trouble.
I can't think of anything else you purchase on a finance scheme and are allowed to keep it if you can't afford the payments; let alone expecting someone else to make your payments for your!
Leave them to be repossessed; the government can even buy these properties as an investment and rent them back to the previous mortgagor. Yes, why not, a public funded buy and rent back scheme.
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Anonymous | 30 Jun 2010 10:49 am
SVRs are high for two main reasons.
1) Need to pay higher rates to attract deposits
2) If you are cojoled not to repossess (certainly as state-owned banks have been), then mortgages essentially become unsecured, demnding a higher risk premium
As for the public funded rent-back scheme, the banks have been setting up shell companies for the repoes they have, as they do not want them to flood the market; maybe hte gov should swap their equity in Lloyds and RBS for these repos
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Anonymous | 30 Jun 2010 11:22 am
Perhaps all mortgages should come with an "at cost" - no loaded premiums - monthly premium payment protection policy.
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Josh | 30 Jun 2010 11:26 am
affordable housing which means it's getting rid of all council owned properties.
I understand the sentiment and yes borrowers need to be bought to account, but there has to be support for GENUINE people needing help and yes concerns should be raised.
Im with you Tony, if you cant afford it, you shouldnt have it - but unexpected do happen. Also emphasis should be on Mortgage advisers to do proper checks on affordability of borrowers, however i think government needs to tighten up on borrowers (& on FSA for not addressing borrowers, who think the whole thing is easy to fraud, by simply blaming the broker) .
All borrowers are over 18's, adult. if you can earn, feed yourself, drive car, go on holidays and hold capable judgement of what you ideally want, then it's no excuse that you dont know your debt liability - you cant blame anyone else so bare the penalties, grow up!
as for FSA, one of the best descriptions ive had is they're like one of those ex counil tenant loutts who have been put in council accommodation, who have no idea where and what their kids are doing, no sense of direction of life - now suddenly have been suited and booted and put in a glass building in middle of Central london and put in charge of a system that they only understand when dreaming. They're not quite sure what they want to do, just read a couple of headlines on local papers, look in the mirror and talk to themselves with Johnny 5 recording tape which is passed onto unfortunate enforcers to carry out (who dont understand parts of it themselves) - This description, suprisingly is from an FSA worker, makes a point.
Reference Dinner Ladies.
I hope serious people can take charge of matter, the whole thing has gone tits up. Better we dont have mortgage facilities or benefits, get the whole nation working and just then, may be then everyone can value the true meaning of system.
Bprrowers, please wake up, FSA get in touch with brokers and get the real feel of whats going on in market, you dont know what wee have to deal with in manchester / and other deprived areas.
A constant problem is borrowers lying about certain facts, still in this day and age they think they can get away with it and when caught, what punishment are they handed? NOTHING?
Phrase like 'Nothing to lose' is therefore very much a religion, a nightmare for us Advisers, it wastes so much time. Its time the law addressed these people, not only it will help, it will educate and will also help reduce ISMI claimants - thats a help for us all, dont you think it's a wise thing???
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wasim | 30 Jun 2010 11:45 am
why is it in UK, we only have alot of drum beating when the system ends up with its balls caught in it's nickers?
Look, fundamnetally, borrowing has to preceed unitised level of income persegment, per population. They have to be in a ratio, infavour of income.
Our system is heavily weighted towards debt, borrowing and not income.
Here's one for all readers to think, in last 3 years, how much talk have we had of income? potential growth, policies to facilitate income, or even any decent attempts to get income into population?
Its no wonder there will be debt crisis, thats because you're trying to fix the house roof when the leak is coming from faulty sink pipe in kitchen.
Address the main issue, not the symptom that tickels your pickle.
Even if government bought all housing stock, what good is it if tenants cant afford to pay back? just makes a further mess of things.
There are several social and economic factors associated not just house repossessions; we got teen problems, stabbing, prison population problems, system pressure (NHS, Police and public sector job cuts), reduction pressures everywhere not to mention more depression heading towards us, drugs and alcohol abuse - our system is in dire stress, the fundamentals need to be addressed, yes borrowing affordability is a big issue, but only after the no.1 issue & that is income for common man. Its not fair, and needs to be fixed. No point chasing the chickens to get the golden egg if you havent fed them! you're only wasting you're own energy - Attitude has to change, and that is the biggest challenge for industry and government, so far, they're in the right direction but on the wrong footing. On the budget cut headlines, BBC news showed one elder lady on benefits telling BBC she'd give up the benefits & has no problem, but where are the jobs? Mr Osbourne wants benefits slashed, so do we all, but isnt it ironic he's cutting the jobs - what does he expect from industry which is mullered.
My worry; have they really though this through???
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Anonymous | 30 Jun 2010 4:36 pm
Wasim, they did not need to think it through, the bond market (whose behest we are at due to Gordon's profligate spending policies) thought it through for them.
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