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Banks fear mortgage holidays will hit finances Barclays, HSBC, Santander and Nationwide reject idea
Gordon Brown's scheme to help struggling borrowers avoid repossession by reducing their mortgage payments for two years has been shunned by major lenders - four months after the prime minister tried to show the government was ready to help homeowners through the recession.
After announcing in December that the eight largest lenders covering 70% of the mortgage market would support the new scheme, the government admitted yesterday that Barclays, HSBC, Nationwide and Santander, which owns Abbey and Alliance & Leicester, would not be participating.
That leaves the part-nationalised banks - Lloyds Banking Group (which includes the Halifax) Northern Rock, Royal Bank of Scotland and Bradford & Bingley - backing the scheme. They will be joined by Cumberland building society and National Australia Bank, which owns the Clydesdale and Yorkshire banks.
It is thought that some of the lenders became concerned after receiving calls from customers in December, when the scheme was first announced, demanding to be given a two-year payment holiday. There are also fears the scheme will weaken lenders' capital cushions because of the way participating customers will be treated for accounting purposes.
The homeowner mortgage support scheme (HMS) is aimed at householders 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. Brown announced it in December in the debate on the Queen's speech, amid forecasts that up to 75,000 people could lose their homes this year.
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. The government believes it could face a maximum liability of £500m.
Available to customers with mortgages of up to £400,000, it will allow them 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 from the borrower defaulting by a government guarantee.
Other institutions, including Bank of Ireland and Standard Life Bank, have indicated they will join the scheme in future, and lenders that have opted not to take the guarantee will offer comparable arrangements to their customers. Nationwide said it had declined to take part because its forbearance procedure was already "robust" and because the number of customers using the scheme would be small.
The government insisted 80% of the mortgage market would now be offering more support to struggling borrowers.
Margaret Beckett, the housing minister, said: "On top of the range of measures we've already put in place, this will help borrowers who just need a bit more time to get themselves back on their feet."
Consumer group Which? called the scheme "a great step forward", but said it was disappointing some lenders had not signed up. Peter Vicary-Smith, its chief executive, said: "We will be watching them closely to ensure that the schemes they run genuinely offer similar protection."
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.
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