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Gordon Brown acted yesterday to remove the prospect of a wave of home repossessions before the general election as he unveiled a government-backed intervention to let people affected by the downturn take a two-year mortgage interest payment holiday.
The plan is designed to give people breathing space if they lose their jobs or take a big cut in their income and is designed to show Labour would help middle Britain through the recession.
Brown's surprise move came amid reports that without the government's intervention, repossessions were set to increase to 75,000 next year, hitting levels last seen in 1991, the worst year of the previous recession.
Eight banks and building societies, covering 70% of the mortgage market, have agreed to allow families struggling with mortgage payments the right to defer all, or part, of their interest payments for two years. The government will underwrite the scheme.
Brown's surprise was sprung during the debate on a relatively sparse Queen's speech and followed secret Treasury talks with the building societies and banks. Many details, including the qualification rules, have yet to be finalised but officials denied the institutions had been bounced into a premature agreement to provide Brown with some gloss on a gray Queen's speech, which was almost overshadowed yesterday by the war of words between police and parliament over the raids on Conservative MP Damian Green's office.
The prime minister said the scheme would cover any household which suffered a redundancy, or "significant loss of income". This would, for the first time, extend help to households where one family member loses their job and the other remains in work.
The Treasury plans the scheme will apply to mortgages up to £400,000, and would probably kick in where the applicants have savings of less than £16,000.
The government has estimated that the cost of guaranteeing the delayed mortgage payments would add a £1bn contingent liability to government borrowing, but only cost £100m directly in eventual defaults.
Building societies and banks would act as gatekeepers of the scheme, deciding whether the request to defer mortgage payments was justified. No definition of "a significant loss of income" was provided yesterday, but government officials said it might cover someone forced to take a less well-paid job or less in overtime.
Treasury officials said the numbers liable for help would not be so large so as to damage the mortgage insurance industry. The help was designed to lift the fear of repossession for those facing job insecurity. Those in safe jobs were going to enjoy falling mortgages, officials said.
The move came as the Bank of England is expected to cut its base rate today. The markets expect a cut of one to two percentage points from the current rate of 3%. A cut of 1.5 points would take the rate lower than it has been since the Bank was formed in 1694.
Brown told MPs: "Hardworking households that experience a redundancy or severe loss of income as a result of the downturn will be able to defer a proportion of their interest payments for up to two years as they get their family finances back on track."
The Council of Mortgage Lenders said: "It is not a charter for 'won't pay' borrowers to avoid their responsibilities, but it will provide welcome reassurance to the vast majority of borrowers that the government and lenders are doing all they can ... to help those customers who 'can't pay' due to a change in circumstances."
Brown said the measure was in addition to protection for the unemployed, who can claim help to meet interest payments after 13 weeks.
Treasury officials said the banks and building societies would not suffer a serious loss of income as a result of the deferment. Brown also confirmed that the existing code on how banks treat business will be put on a statutory basis.
The change would mean that banks who fell foul of the code could face a range of sanctions, including fines.
A total of 14 bills were revealed in the Queen's speech yesterday, including two carried over from the previous parliament. Overall it represented the shortest legislative programme since the government came to power and reflected Brown's determination to focus on the recession.
The programme takes in a new constitution for the NHS, confirmation of a right to seek flexible working for parents, a statutory duty on ministers to abolish child poverty by 2020 and wider sanctions on the unemployed to make themselves "job-ready". There was also a clamp down on "all you can drink" offers in pubs as well as lapdancing and prostitution, what one government official described as "action on the whole night out". Health department officials denied ministers had dropped plans to ban cigarette machines saying they were still looking at what is seen as a gateway to under-age smoking.
Internal disputes led to a delay in the constitutional reform bill, seen in 2007 as Brown's flagship legislation.
- Queen's speech
- Gordon Brown
- Mortgages
- First-time buyers
- House prices
- Consumer affairs
- State benefits
- Economic policy
- Credit crunch
- Borrowing & debt
- Welfare
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