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• Homeowners able to pay off just 30% of the interest they owe
• Six lenders have signed up to the scheme
A long-awaited scheme to help struggling borrowers avoid repossession by reducing their mortgage payments has been launched by the government.
The homeowners mortgage support scheme (HMS), which was announced in December, is aimed at households who do not qualify for income support but suddenly find their earnings reduced, perhaps because one partner has lost his or her job or taken a pay cut.
Around 40,000 borrowers lost their homes last year after falling behind on mortgage repayments, and the number is expected to rocket to 75,000 this year as household incomes are squeezed by rising unemployment and pay freezes.
Lenders have been asked to use repossession only as a last resort, and the scheme is designed to help owner-occupiers who do still have an income to keep their homes.
The scheme, which will be available to those with mortgages worth up to £400,000, will allow homeowners to pay off just 30% of the interest they owe for up to two years while they get their finances back on track. Over that period the lender will be protected against the borrower defaulting by a government guarantee.
However, so far only six lenders have signed up to the scheme, including Lloyds TSB – which owns the UK's largest lender, Halifax, and Bank of Scotland – and the government-backed Bradford & Bingley and Northern Rock.
Other institutions, including Bank of Ireland and Standard Life Bank, have indicated they will join later, but several of the country's biggest lenders have opted not to take part.
Barclays (including First Plus), HSBC, Nationwide and Santander (including Abbey and Alliance and Leicester) have all confirmed they will offer similar arrangements to their customers, but have opted not to take up the government guarantee.
A spokeswoman at Nationwide said the building society had declined to take part because its forbearance procedure was already "robust" and because the number of customers using the scheme would be very small.
She said the lender's procedure was very similar to the government's scheme – it asks customers to get in contact as soon as they are in financial difficulties and encourages them to take independent financial advice. Because it is not part of the government's scheme, Nationwide says it can tailor its support to individuals so that some may pay 30% of interest while others may pay more or less, according to their circumstances.
The government said 80% of the mortgage market would now be offering more support to struggling borrowers.
Consumer group Which? described the scheme as "a great step forward", but said it was disappointing some lenders had opted not to sign up. Chief executive, Peter Vicary-Smith, added: "We will be watching them closely to ensure that the schemes they run genuinely offer similar protection."
Government co-operation
The housing minister, Margaret Beckett, said: "We know that many families are worried about how to pay the mortgage right now, and we're determined to ensure there is real help available for them.
"Today's news is a result of excellent co-operation between government, lenders, and money advice services. On top of the range of measures we've already put in place, this new support will help borrowers who just need a bit more time to get themselves back on their feet."
The government stressed the scheme was designed to offer "breathing space" to borrowers and was not a "payment holiday", and that borrowers will need to repay the interest owed at a later date. It added it would be working with smaller lenders to encourage more to sign up to the scheme.
The Council of Mortgage Lenders said HMS was "simply one means to an end" and that it did not matter that not all lenders had signed up. "What matters is how lenders are working with their borrowers through periods of difficulty where they believe these can be resolved, not whether they are using HMS in itself," it said.
Its director general, Michael Coogan, added: "Lenders fully recognise their responsibility to keep people in their homes where repossession can be avoided. The fact that some lenders are utilising the new scheme and others are not indicates simply a difference in their approach to forbearance, not in their commitment to it."
Coogan said it would be some months before it was clear whether the scheme and other measures to reduce repossessions had been a success.
To qualify for the scheme, borrowers must meet following criteria:
• Have bought their home before 1 December 2008.
• Be an owner-occupier – the scheme is not open to buy-to-let properties.
• Have an outstanding mortgage of less than £400,000 and savings of less than £16,000.
• Have a regular household income and be able to make a minimum contribution of 30% of the total interest payment.
• Have discussed other options with their lender and been making regular payments for at least five months.
• Have sought independent financial advice.
The scheme, which yesterday received European commission approval under state aid rules, has already been criticised following claims it may help only 6,000 people, while concerns have been expressed it will simply defer a "repossessions spike" until 2011.
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