Below is an article posted on Thisismoney today. To summarise Gordon is putting together a scheme which will allow struggling homeowners to effectively stop paying their mortgages for a period of upto two years. There will be a ceiling of £400,000 on the defferable mortgages and so far eight of the major lenders have agreed to the scheme.

OK lets pull this apart then and ask ourselves what Gordon will achieve with this.

1) Repossesions will fall.

2) Gratitude for the Labour party will increase.

3) A greater percentage of uk mortgages will be Interest Only.

Righty ho then I’m sure there are plenty more outcomes but lets leave it there and have a look at what worries me about all this ( although the scheme recieves grudging aproval from me for the most part ).

1) How can the lenders affoard to do this when they have just borrowed billions from the government. - This is a major concern for me if the mortgage borrowers do not make payments on their mortgage for a couple of years this could put even more pressure on the embattled banks.

This is particularly worrying if the bank has severely underestimated how many people are likely to need this help.

2) Being a Tory Boy I think thats ’nuff said!

3) To be honest giving the borrower a 2 year holiday is a great idea - However by converting them to a interest only mortgage at the same time all we are doing is storing a bigger problem up for later down the line. An interest Only mortgage expects the borrow to only pay the interest on the loan not the capital borrowed. The effect of this is that at the end of the mortgage the full capital sum becomes payable this relies upon the borrower putting some form of savings vehicle in place during that period to make repayment at the end of the term. However please remember that the people entering the scheme will be those who are struggling most asking them to effectively save money up for an event many years in the future, is in my opinion, playing with fire.

Lets hope this turns out to be a possitive move - In this case i think it actually might!

Here’s that article

Struggling borrowers will get mortgage paid

Gordon Brown has thrown the housing market a lifeline by offering homeowners facing repossession a mortgage interest holiday. Families with a loan up to £400,000 can defer payments for up to two years if they suffer a sudden loss of income.

Mr Brown said his offer was aimed at 10m middle income families who live in fear of losing their jobs and their homes.
It covers more than 90% of home loans and the Treasury is praying it will put a floor under a market in freefall by restoring desperately-needed confidence.

Eight major lenders covering 70% of mortgages have signed up to the Homeowner Mortgage Support Scheme even though details are still sketchy.

And last night doubts were already growing about the practicality of the scheme. Housing Minister Margaret Beckett suggested only 9,000 families could benefit from the initiative. Those who qualify will effectively be allowed to reschedule their loan with their bank, but in exchange for a payment holiday will have to repay the money at a later date. The Government will guarantee the banks against default.

Although the potential liabilities to the taxpayer could reach £1bn, the Treasury estimates the actual cost of defaults will be £100m.

The Council of Mortgage Lenders welcomed the move and insisted it was not a charter for ‘won’t pay’ borrowers to avoid their responsibilities.

But director general Michael Coogan said: ‘The devil will be in the detail.’ The scheme was announced amid alarming predictions that repossessions could hit 75,000 next year - near the record peak of the crippling 1991 recession and far higher than the 45,000 expected this year.

However, speaking on BBC Radio Five Live last night, Mrs Beckett claimed the problem was more that people were ‘fearful’ of repossession rather than actually facing the loss of their home.

After mentioning that 9,000 families could benefit, she realised she had played down the extent of help announced by Mr Brown and added quickly: ‘I almost wish I hadn’t given you that number because no one really knows.’

The Prime Minister used his speech to surprise MPs with his mortgage rescue scheme, which had not been included in the Queen’s Speech because it does not require legislation.

Downing Street said the scheme would allow a mortgage holder to defer up to 100% of interest payments for up to two years. To qualify, applicants will have to show their income has dropped significantly and they are unable to pay their mortgage. Those with a repayment mortgage will be expected to switch to an interest-only loan.

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