Wednesday, Dec 03, 2008
GB “rabbit out of the hat” mortgage holiday plan
FT: Homeowners granted mortgage holiday
Gordon Brown is to grant homeowners in financial difficulty the right to demand a two-year mortgage holiday, guaranteed by taxpayers, in a dramatic bid to underpin the housing market.
Britain’s eight biggest banks are understood to be supporting the programme. Mr Brown is expected to announce the broad principles to the Commons on Wednesday afternoon.
The scheme, which requires no new primary legislation, represents a gamble with taxpayers’ money on the length and severity of the housing downturn. Officials estimate the measures will amount to a £1bn “contingent liability” but cost about £100m. Mr Brown expects the scheme to make a big difference to repossession rates by addressing the cycle of fear undermining the housing market.
Posted by mountain goat @ 04:06 PM (6104 views) Add Comment
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1. mountain goat said...
FT invariably makes it subscription only so here is the article...
Homeowners granted mortgage holiday
By Alex Barker, Jim Pickard and Jane Croft
Published: December 3 2008 15:49 | Last updated: December 3 2008 15:49
Gordon Brown is to grant homeowners in financial difficulty the right to demand a two-year mortgage holiday, guaranteed by taxpayers, in a dramatic bid to underpin the housing market.
The move will put about £1bn of taxpayers’ money at risk in an attempt to stem the rising flood of repossessions as Britain enters recession and unemployment soars.
EDITOR’S CHOICE
Westminster blog: Gordon pulls a rabbit from the hat - Dec-03
Video: George Parker – Has the government run out of ideas? - Dec-03
Brown unveils flexible work rights - Dec-03
Police had ‘no warrant’ to arrest Green - Dec-03
Brown’s agenda: 'Fair rules in a fair society' - Dec-03
No more red tape, pleads business - Dec-02
Offering a lifeline to homeowners is seen by the prime minister’s allies as the “rabbit out of the hat” on a day when the Queen unveiled one of the thinnest programmes of legislation seen in parliament.
The scheme would offer protection to households that are falling behind on mortgage payments when one earner losses their job, falls ill, or suffers a big fall in income.
Lenders have agreed to offer eligible families a holiday on mortgage interest payments that would be guaranteed by the government, meaning losses would be reimbursed if the borrower were unable to resume repayments.
Britain’s eight biggest banks are understood to be supporting the programme. Mr Brown is expected to announce the broad principles to the Commons on Wednesday afternoon.
The scheme, which requires no new primary legislation, represents a gamble with taxpayers’ money on the length and severity of the housing downturn. Officials estimate the measures will amount to a £1bn “contingent liability” but cost about £100m.
Mr Brown expects the scheme to make a big difference to repossession rates by addressing the cycle of fear undermining the housing market. It is likely to allow thousands of families in financial trouble to stay in their homes at least until the next election.
But the offer of support to families living beyond their means may be seen as unfair by borrowers who have planned carefully and made sacrifices to meet their financial obligations.
The state intervention in the housing market may also distort house prices as Britain’s decade long property boom unwinds.
The number of mortgage-holders falling behind on payments or being repossessed is rising at its fastest rate since the last recession. Figures from the Council of Mortgage Lenders show that 1.44 per cent of all mortgage loans were three months or more in arrears – or 168,000 homes – in the third quarter.
The total number of properties repossessed rose to 11,300 in the period, equal to 0.10 per cent of all mortgages – up from 0.09 per cent in the second quarter.
The CML has predicted about 45,000 repossession during the whole of 2008, up from about 30,000 last year. However, this is still below the last peak of 75,540 in 1991, when 350,000 homeowners had fallen behind on mortgage payments by three months or more.
The government recently moved to improve “Income support for mortgage interest” (ISMI), which is the safety net for families who lose all their income and can no longer meet mortgage payments.
From January there will be a cut in the waiting period before ISMI is paid from 39 weeks to 13 weeks, while the capital limit for claims will be increased from £100,000 to £175,000.
Homebuyers can already take out mortgage payment protection insurance but the market is uncompetitive and customers tend to be over-charged, according to a recent report by the Competition Commission.
The report found that most of the UK’s 14m PPI policies are sold at the time a consumer takes out a loan, suggesting that many are unaware that they could shop around for better value.
The commission is consulting on whether it would be appropriate to ban the sale of PPI at the same time as the associated credit product.
Copyright The Financial Times Limited 2008
2. fjcruiser said...
Effectively the BTLeters wil benefit since they represent the majority of defaulters. Then GB can call an election next year and win again.
3. nubbers said...
GB really does seem to be doing everything to leave his pile of **** until after the next election.
4. sold 2 rent 1 said...
More evidence of the Armstrong high/ dead cat bounce this April 2009.
Phase 2 of the crash to begin late summer 2009.
Oil to hit $400 by April 2010
Eurozone to break up by October 2010
5. phdinbubbles said...
throwing bad money after shit
6. alan said...
This would be a very significant development as all regulars to the site will appreciate.
It seems to be the boldest attempt so far by GB to underpin the market (and buy time till the next election).
He would effectively be fighting the market with my (our) cash.
I await the announcement!
7. Annoyed Times Ten said...
I really can't believe this. Does this govt have any sense of fairness, decency, justice? Or is that a stupid question. BTLers must be cracking open the champagne.
8. Penbat1 said...
More trying to buck the market. The market simply wants to correct and pouring yet more money will just hasten the inevitable hyperinflation after massive money printing.
9. fancypants said...
is it April 1st?
this man truly is a lunatic.
10. fjcruiser said...
I just wonder how the nationalised bank will ever be able to pay 12% dividend to the taxpayers if they wait for prices to come even more down before reposessing. Another con.
11. Lord D'arcy Pew said...
Who will lend me the money for 100 BTL properties? I'll keep the rent, pay not one penny back of the loans for two years, then leave the country.
12. Icepick Tony said...
The article does not make clear wether this legislation is to cover only "owner" occupiers or if it also covers everybody with a "lie to bet" mortgage. I doubt if it will make a lot of difference if it only covers owner occupiers.
13. Womfd said...
Absolute madness!
This is the last straw – if this doesn’t want to make you march on Parliament Square nothing will.
Is this man insane?
14. Mickyg said...
What is up with this guy, bailing out all the reckless bods while us who look after our finances just have to sit and suck it up.
Terrible.
15. marcus b said...
To be really effective this will cost more than 10x as much, maybe 100x as much, either they're lying about that, or it's not going to be the least bit effective.
16. gardeniadotnet said...
2. fjcruiser said... GB can call an election next year and win again.
If this is the case, I will get a great deal of sadistic satisfaction watching Gordon Brown stew in his own juice as the economy collapses around him.
Alternatively, Cameron wins and we'll see that he hasn't a clue either.
Nice.
17. montesquieu said...
It will be a typical Broon anouncement, big on bullsh*t, worthless when you read the small print.
At least, I hope so. This is a ridiculously BAD idea.
18. Marcus B said...
Just to add, consider the claimed cost of this versus VAT giveaway or even the Icesave payout. If it was that cheap to save the housing market there was never a real problem in the first place ... Rest assured those who believe markets always win out in the end, the more Gordie fiddles the worse it's going to turn out...
19. Womfd said...
I see Robert Peston is preparing the masses with a "Repossessions 'to rise to 75,000'" blog entry today.
When will this insanity end?
20. uncle tom said...
Don't think BTLers will qualify, so repo's will surge anyway.
As a scheme it offers a little bit of respite now, but what do these people do in two years time?
Home in deep negative equity, even bigger debt to pay off thanks to interest being rolled up for a couple of years - these people will just blow what money they have for a couple of years - but not a penny on home maintenance - sure in the knowledge that they will go bust unless the bailout gets extended..
..it's no solution, and it will cost the taxpayer far more than they have estimated.
21. phdinbubbles said...
Old Chinese proverb:
A pogo-stick is no use to a dead elephant.
22. whostolemyendowment said...
W T F !
Let me get this straight.....homeowners....sorry 'Debtowners' will get a two year bail out if they fall behind in the mortgage for income related reasons (not just becasue they won't pay, or spend their smaller income on fags, beer n bingo!...)...So how will this be instituted? Who looks into the borrowers situation? Will it be the lenders or dept of W&P that decisdes who gets help and who doesn't...?
I rent, if I fall behind with my rent - I'll be kicked out......but any thoughts on that GB?
23. Fly By Night said...
Very roughly, allowing £100,000 for each failed mortgage, a £billion only allows for 10,000 such failures. Yet on today's BBC site there is an article estimating 75.000 repossessions in 2009.
http://news.bbc.co.uk/1/hi/business/7762627.stm
So that is a factor of 7.5 underestimation for one year, then maybe a factor of about 15 over 2 years of the cost to the tax payer of this scheme.
24. luckyjim said...
I don't think there has been any such announcement. Even Gordon would not tuck this away in the small print surely ?
25. Pete said...
Oh why not... nothing surpises me anymore... lets keep the unemployed in their £400,000 houses they could barely afford anyway. It just goes to show that the ONLY source of perceived wealth in this country is their 'House equity'. Whats comming next, " I can't afford my band H council tax.... pay it for me!"
26. renting2 said...
Agree with montesquieu, it will be big on promise but be of no practical use. The inevitable will be delayed for a few months but not avoided. Another consequence might be that people who sensibly took out such things as (proper!) redundancy insurance or mortgage payment protection may cancel it to save money on the back of this.
27. mountain goat said...
Mortgage support: Gordon Brown pulls a rabbit from his hat
"The 15 bills in the Queen’s Speech are as dry as dust*. But Alex and I have been told that Gordon Brown is about to reveal the big surprise....."
One hell of a rabbit
28. gardeniadotnet said...
"I hate that wabbit."
Elmer Fudd.
29. mdmick said...
Buy to let indirectly benefits surely:
If the equity deposit for the BTL is equity from the person's actual home then, by saving the home owner's home, his BTL property is saved as well.
Yes, the sliding scale test should be interesting.
30. I Want A House said...
The destruction of the United Kingdom.
31. holding out said...
Does anyone get fed up with the expression "hard working families". To quote GB "Hardworking households that experience a redundancy or significant loss of income as a result of the global downturn will be able to defer a proportion of their interest payments for up to two years while they get their family finances back on track."
Surely if they are made redundant then by definition they are no longer hard working. Is there to be a check that if they swung the lead when they were at work then they don't qualify. The other thing I notice is that the recession/depression is always referred to as the global downturn. For god sake put the wabbit in charge.
32. luckyjim said...
Anyone got a link to the actual policy? Can't find it on BBC
33. mountain goat said...
http://news.bbc.co.uk/1/hi/uk_politics/7763044.stm
34. whostolemyendowment said...
Hi LJ,
latest news on BBC - http://news.bbc.co.uk/1/hi/uk_politics/7763044.stm
35. luckyjim said...
Never mind. Found it on Sky News (spit).
Leaves a lot of empty space -
'a proportion of their interest' How big a proportion ?
Will owners still need to repay capital ? Or are we assuming they switch to a les-than-interest-only payment plan.
Why is this not headline news ?
36. luckyjim said...
Thanks for the BBC links guys. Much better.
37. It_is_going_with_a_bang said...
Hmmm. Well as I read it the plan is 'defer' payments - i.e. a payment holiday.
In which case instead of getting the government to pay your mortgage interest and you don't have to pay it back whilst you are unable to pay for it, you are being allowed a payment holiday? This would infact leave you with a bigger debt than you started with - as all payment holidays do currently.
I would not think that is giving anything away as such, however the risk element of the extra debt / repayment I assume is what is actually being unwritten by the government.
Also there is the question of how you "qualify"....
I see this as one thing only. An attempt to win votes for the next election and thats about it - as all his policies have been for many years now.
Will it make any real difference to the economy? Who knows. Probably not.
38. Dillardpruitt said...
Holding out....I notice he's modified it slightly now to 'hard pressed families'. It's so blatant....come on people of Britain, don't let them get away with these simple soundbites, repeated ad nauseum. Can't we all see through it? I find it massively depressing.
39. wealthyvagrant said...
The markets will vote on this by hammering down the £ some more....
40. mountain goat said...
Don't pay the mortgage for 2 years and inflation will have eaten up 10% of the debt yahoo!
41. mark wadsworth said...
Oh G*d ... I need to sit down ... oh Jes*s H F*** ...
42. Jonnyp said...
WTF, I'm going to blockade Heathrow Airport until the government resigns, whose with me?? How many struggling first time buyers are going to lose their jobs over the next year, get thrown out of their rented house, what about that whole generation of young people, Mr Brown? That whole generation of young people who you have scr*wed over for the past 10 years and continuing to sticking it to them?
43. davecrash said...
@20
I Totally agree with you the 'hard working families' expression is waring very thin with me too. What about all us solvent individuals and couples who will be no doubt bankrolling this ridiculous scheme through even higher taxes and bank charges, any help for us when we run out of money or loose our jobs, probably not.
I am also sick to the back teeth of hearing about 'the problems that started in america'.
Why doesn't Gordon Clown use the money he is throwing as this to build some bloody council houses to put the repossessed people in and let the private housing market correct itself.
44. techieman said...
hey calm down people, yes he is trying to get confidence back into the market but i think we need to see some of the details. Lets wait and see. Spring DCB + off to the polls here we come!
45. handle_it said...
"dead cat bounce this April 2009."
Think you're wrong there matie ! This cat ain't for bouncing. Nothing GB does will make any difference - except making it worse of course.
If you're wrong will you/they redefine your prediction me wonders...
46. Greenbay said...
Government intervention at its best :-) thought i would pop back to gloat.... hehehe
Everyone doubted the measures the government would take prior to the crunch, apart from one sole voice that is.....oh yes me.
now lets see....
massive rate cuts, deferred interest, increased 3-6 month repo time, massive stimulus packages..
how about me, well making thousands more pr month on me portfolio due to me tracker mortgages ching ching
told you so, your all so financially uneducated :-) hehe the negativity on this poor site is comical...
47. goweresque said...
This is effectively Gordon allowing homeowners to do exactly what he is doing - attempt to borrow their way out of a crisis. Read the example on Peston's blog. The banks have agreed to allow defaulting mortgage holders (in certain circumstance - redundancy/'significant loss of income' - delightfully vague!) to roll over a percentage of the interest payments only on the mortgage. The govt will then guarantee that extra bit on the mortgage if the mortgage holder defaults again and the house is sold and the proceeds don't cover the whole mortage.
So at a time of falling house prices, and negative equity (which presumably most people who are in arrears will be in too), this allows you to INCREASE the size of your mortgage. Thereby making you further in debt, and greater negative equity. All this will do is prolong the agony of the housing slump for another 2-3 years as people come off the roll over period and fall into arrears again. No mentioning the fact that they will have made no capital repayments for at least 2 years. It's just putting the day of reckoning off, like Gordon is trying to do with govt spending. Either way eventually one reaches the buffers. Its only a matter of when.......
48. tyrellcorporation said...
this is like adding groynes on a sandy beach to stop erosion. The erosion simply happens further down the coast. The die is cast and government intervention will ultimately delay the natural correction.
49. jack c said...
The Banks have only just found out Crash G's proposals after he made the announcement ! - there is an emegency meeting with C of E Mr D to clarify matters - even the Banks have now accused him of making policy on the hoof.
Let's see what the BOE come up with tommorrow so we can have a full debate on the proposals (assuming the BOE members arent arrested by the police and held for 9 hours for doing their jobs of course)
50. mdmick said...
Yes, there are going to be at least 2 types of recipient:
1. someone who stacks up debts while redundant to such an extent that the house has to be repossessed a lot later in the future; and
2. someone who needs a number of months to get back on his/her feet, and then successfully resume paying the mortgage.
For a socialist government, it seems correct to adopt this policy if person type 2 significantly outnumber person type 1.
The irony, I guess, is that it stalls house prices from dropping so quickly, and so a lot of people who want to move up the ladder or get onto the housing ladder are going to be delayed or thwarted. eg. hard-working families with a kid on the way who need a bigger place to live.
51. Brownout said...
Gordon Browns Downfall - the Prequel ….
One of 7 hilarious spoof clips. Brilliantly devised. Watch, laugh, weep, but forward it to everybody. This 2minute satirical view of a grim future deserves to be seen by anyone half concerned at where we're heading, before its tooooo late
"It’s the fault of the Americans. It’s a global crisis" (Yvette, 1m 06s in)
http://uk.youtube.com/watch?v=wtIjgsxe-jM
--
52. growler said...
I wouldn't worry about it. It's not goign to help the housing market at all - since these people will be out of the market for good. Their houses that they are in (due only to government handouts) means their best advice ought to be to get rid of the house and the debts. If they don't they might be living in the home, but they won't be spending money on anything else as they will simply wither go bankrupt before (due to other insolvencies on cards), save up to repay or simply delay the inevitable.
It does - cynically - buy voters. By the time Crash Gordon has an election, a lot of people will be jobless and in the mess. Those people will see GB as their saviour. Not as the person who got them in the mess in the first place.
53. sold out said...
just been watching this story unfolding on sky news.turns out half the banks don't know anything about it.
Strikes me that with all the flak gordo and nu labour are having with the realisation that their pre budget report is futile and the own goal with the arrest of Damian Green, GB decided to announce this early before it has been fully agreed.
i reckon its another nu labour non policy that looks good but offers very little.
54. Clever Clogs said...
Crash Gordon has solved nothing. The day of reckoning has only been delayed very slightly. The inevitable will still happen and he is only moving the misery further down the line a wee bit.
55. gardeniadotnet said...
36. growler said... It does - cynically - buy voters. By the time Crash Gordon has an election, a lot of people will be jobless and in the mess. Those people will see GB as their saviour. Not as the person who got them in the mess in the first place.
I'm not so sure. People are starting to wise up at last.
The trouble is, there's no credible alternative to Labour.