To qualify borrowers will also need to have received financial advice from a party other than their lender to determine their eligibility for the scheme, such as a mortgage broker.
The borrower’s long-term sustainability of their financial position will need to be tested and their ability to resume full payments once their income increases.
They must also have fallen into arrears for a number of months during which the lender has exercised forbearance.
Borrowers will also need to show they have suffered a loss of income from employment or self-employment of a scale which now makes full mortgage payments difficult, but which is not expected to be a permanent loss of income.
The borrower will need to have been in dialogue with their lender, including over the use of existing forbearance policies, and have been making some level of regular payment and have taken out a mortgage of up to £400,000.
They must also have savings below £16,000 and not be in receipt of SMI or mortgage rescue assistance and have been assessed as being able to pay a certain monthly amount on an ongoing basis.
The government hopes the new scheme will provide a bridge, giving homeowners who are experiencing financial problems sufficient time to find new employment or recover income, without the added concern and stress of potentially losing their home in the interim.
The scheme will allow lenders to reduce a borrower’s current monthly mortgage payments, with the deferred payments rolled up, added to the principle, and paid at a later date when the borrower’s financial circumstances have improved.
The government will guarantee the lender against a proportion of any loss incurred on the deferred interest payments in case the borrower defaults.