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Lenders called on to play their part with ISMI reform

The Citizens Advice Bureau says it’s vital that lenders now play their part and treat borrowers sympathetically following the government’s changes to Income Support for Mortgage Interest.

The Department for Work and Pensions today unveiled a package of measures to help vulnerable homeowners meet their mortgage interest payments.

At present anyone losing their job will not receive any government support to pay their mortgage for the first 39 weeks of unemployment, and after that the benefits will only cover the interest on the first £100,000 of the mortgage.

From next April the rules will change and ISMI benefit will be paid on the first £175,000 of the mortgage and will cut in after just 13 weeks of unemployment, for new claimants.

Stephen Timms, minister for welfare reform, says: “Our reforms to ISMI payments will simplify the system and make it easier for people who are eligible to claim.

“We will also increase the capital limit for new working age claims to take into account the value of people’s homes today.

“The improved financial help that ISMI provides will assist eligible homeowners with their mortgage interest payments should they get into difficulties.”

David Harker, chief executive of CAB, says the changes to ISMI could be an effective way of keeping people who lose their jobs suddenly and have no savings to fall back on in their homes.

But he says that for the scheme to work it’s vital that lenders play their part and treat people sympathetically and fairly.

He says: “Lenders must play their part by showing forbearance, treating people in difficulties sympathetically and fairly, being willing to negotiate reasonable, affordable repayment arrangements with borrowers, and ensuring they take possession action only as a last resort.

“Bringing in a ‘pre-action protocol’ for mortgage arrears without delay would ensure that court action is only taken where all other options have failed and no agreement can be reached.”

Brian Brown, head of insight at financial research company Defaqto, adds: “This is good news. In the current climate there is a good chance that an individual not able to pay their mortgage because they lost their job is likely to have their house repossessed long before the government assistance cuts in.

“From next April they will be eligible for more support, and after only three months. ”

But mortgage holders still need to be wary.

Brown adds: “There is still the issue though of how you would survive if you lost your job.

“You will still need to repay the mortgage for the first 13 weeks of unemployment, and after that ISMI only covers the interest on the mortgage.

“Although your house is more likely to be safe in future, you still need to consider how you will pay all those other bills as well.”

Many mortgage holders currently have some protection in the form of mortgage payment protection insurance policies, but these have had a bad press recently, with claims that they are overpriced and only cover one debt.

Brown says that clients might want to consider buying a short-term income protection policy, which will allow them to insure other income so that they can keep living through a period of unemployment until they get back to work.

He adds: “There are a number of companies selling STIP policies. They work very much like an MPPI policy but allow you to insure a proportion of your income, rather than just a mortgage.”

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