A leading charity has proposed a new form of mortgage payment insurance to help the growing number of borrowers at risk of repossession.
Rather than traditional payment protection insurance, the Joseph Rowntree Foundation is recommending that a compulsary form of cover for first-time buyers, with a 25% contribution from both the government and lenders, could be the answer.
The cover would provide up to 10 months worth of mortgage payments. JRF calls it the Sustainable Home Ownership Partnership scheme, with 25% of the cover invested by the government, another 25% by lenders and then 50% by borrowers.
Report co-author Mark Stephens from the Centre for Housing Policy, says: “Since 1995, restrictions to the state safety net mean home-owners have to wait nine months for any help. Take-up of private insurance is so low that only one-fifth of home-owners are protected.”
On top of SHOP, it says a Housing Tax Credit could provide additional assistance to home-owners in low-paid work. This would support people who face a sharp drop in income without becoming wholly unemployed, and also make it easier for home-owners to move from SHOP into low-paid employment without facing a net reduction in their incomes.
SHOP is not intended for second home-owners or private landlords. The research team behind the report suggest it be made compulsory for all new borrowers and those who remortgage. While initial coverage would be limited, this would increase rapidly as new mortgages represent 10% of all mortgages.
Steve Wilcox, co-author of the report, adds: “The policy introduced in 1995 isn’t working. Vulnerable home-owners are now more exposed to risk than they were in 1992.
“With housing market conditions tightening it’s time to rethink how to best help these households and to provide better underpinning for the housing market – and the wider economy. We hope that this report will kick-start a debate on how policy should change to meet modern-day housing needs.”