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CML warns government on law of unintended consequences

Responding to the government’s proposed Homeowner Mortgage Support Scheme, the Council of Mortgage Lenders says it will en-able some borrowers to defer a proportion of their interest payments for up to two years, with the government underwriting a proportion of lenders’ risk of loss.

At the same time, the deferred payments could have a significant impact on borrowers once they get back on their feet financially.

The CML therefore argues that any scheme would have to be fair to borrowers, lenders and the government, manageable by lenders with the input of debt advisers and transparent in terms of the risks, scope and financial scale of the proposals.

To meet these objectives, the CML suggests the government guarantee to lenders should cover the total deferred interest accumulated by borrowers and remain in place for up to 10 years.

This would prevent lenders feeling they have to seek repossession after the end of the deferred interest period to trigger access to the guarantee, giving households more time to clear arrears built up during the period in which they were making reduced payments.

It further suggests that concessions regarding the capital treatment of loans accepted into the scheme need to be explored as the amount of capital lenders will have to hold against loans in the scheme is a potential barrier to take-up, with a potential knock-on effect on new lending.

The amount of capital a lender has to hold for each mortgage in arrears is between 30 and 80 times more than for a new mortgage.

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