Government Shocks Financial Institutions & Offers Hope To Defaulters With Large Mortgages

Posted on | December 9, 2008 | Leave a Comment

At the State Opening of parliament this week, the Prime Minister offered a very condensed Queenâ€™s Speech. Indeed it contained only 14 bills. Thatâ€™s the smallest number of proposed bills for many years. He said that it was his aim and desire to concentrate almost the entirity of the coming session of parliament on the current crisis, and the measures to lessen and in time undo it.

The source of the surprise for the banks was the Prime ministerâ€™s announcement that the government will bring in a new emergency state guarantee which is primarily planned to aid those who until recently enjoyed upper-middle & upper income levels. These are the people to whom the Prime Minister must return the trust so they once again begin to buy houses.

Until now this group has not been provided for even in the lately extended state benefits scheme. Under this scheme, anyone receiving state benefits such as redundancy benefit and so on, can also have their mortgage interest paid for up to 2 years. This help is subject to a maximum of a Â£200,000 loan. The idea behind this is to remove the fear factor.

The new plan declared in the Queenâ€™s speech will permit anbody with a mortgage of up to Â£400,000, who now discovers themselves without a job or on critically reduced income, to take a â€œmortgage holidayâ€ of up to 2 years, or simply to reschedule their mortgage with temporary lower payments, whilst they sort out their finances. Itâ€™s supposed that itâ€™s very important to give belief back to this group so they begin to buy homes again, and so put money back into the struggling economy.

The interest on the loan will still be increasing at the standard rate, and will be added to the already outstanding loan when the borrowerâ€™s financial state of affairs gets better to the point where he can commence repayments. This additional responsibility will be assured by the government, in what is actually a state sponsored mortgage guarantee scheme which is underwritten by the treasury.

According to the treasuryâ€™s own statistics, itâ€™s understood that if everyone covered by the proposal took advantage of it, and then entirely defaulted on the rolled over debt; the cost to the treasury, and so in due course, the tax payers, will be in the region of Â£1 billion. Nonetheless, officials at the treasury reckon that the probable real cost will be in the area of Â£100 million.

Itâ€™s understood that the government was encouraged into taking this action partially by the estimate from the council of mortgage lenders which predicts Property repossessions will soar to 75,000 Houses next year. Thatâ€™s considerably up on the 45,000 anticipated by the conclusion of the present year. Itâ€™s also not quite as many as Home Owners suffered in 1991 which was the end of the last depression. The Prime Minister is aware that he must not only tackle this crisis, but be seen to overcome it, and the confirmation of that will be when We buy houses with confidence once again.