Mortgage holiday plan leaves confusion

By Alex Barker, Jim Pickard and Jane Croft

Published: December 4 2008 02:00 | Last updated: December 4 2008 02:00 Britain's biggest mortgage lenders were last night struggling to work out the details of a hastily arranged scheme designed to prop up the housing market and add lustre to andofus jol otherwise dull Queen's Speech. Senior bankers were given just a day's notice of Gordon Brown's plan to offer a state-backed mortgage holiday to some families struggling with repayments, leaving a raft of details to be settled in coming weeks. Questions remain over who is eligible, how the scheme will operate, what effect it Air Jordan 18will have on the housing market, what compensation lenders will receive for lost interest and what liability will be assumed by taxpayers. So far the government has said the scheme will apply to mortgages of up to £400,000 and cover households that experience "a significant or temporary loss of income". Eligible borrowers would be able to defer a proportionrunescape power leveling of their interest payments for up to two years. The missed payments would be added to the principle and the mortgage extended so it could be paid over a longer period. The main inducement for lenders is a broad government guarantee to reimburse any losses from the payment holiday if the borrower eventually defaults. Officials estimate the guarantee will appear on government books as a "contingent liability" of £1bn, but will cost about £100m. The assumptionsAir Jordan 15 behind the calculation were not disclosed. Shelter, the homelessness charity, estimated the scheme could help up to 100,000 homeowners. Adam Sampson, chief executive, said it had "the virtue of simplicity" and was "exactly what we were looking for". The main lenders, which were given a broadrunescape items description of the scheme on Tuesday afternoon, said it was "workable". But most echoed the Council of Mortgage Lenders in stressing that the "devil will be in the detail". Conditions for eligibility are likely to be the most controversial aspect of the scheme, defining both its scope and impact on the wider market. Affordability standards will need to be set and clear rules for verifying income. Officials suggest there is likely to be some means-testing, with people holding savings of more than £16,000 - the national average - excluded. Safeguards will be required to prevent borrowers "gaming the system" by living off the taxpayer for two years and then handing in their keys. Air Jordan 18These conditions will be critical in preventing any backlash among taxpayers unhappy at reckless borrowers being bailed out. Downing Street admits that home repossessions will continue, in spite of the scheme. But the protection is likely to slow the pace significantly. Offering this lifeline to borrowers may have unpredictable effects on house prices, as it could prevent a wave of forced sales - at least till 2011. The CML said there were still "outstanding Air Jordan 15questions at the end of the two-year period in relation to house prices and arrears unless the market picked up. We just haven't seen the detail; we are not looking at a detailed scheme yet". Some bankers highlighted uncertainty over what would happen if borrowers were protected by insurance against losing their job. Indeed the scheme cast a shadow over the entire mortgage payment protection insurance market, which the Competition Commission recently found to be uncompetitive and often over-priced. Another problem for lenders will be the loss of cash flow over the holiday period. Officials have signalled that they may be willing to loosen capital requirements. It remains unclear whether interest will be levied on the deferred interest. Finally, there is the question of whether the most aggressive lenders in seeking repossessions will join the scheme at all. Meanwhile, Mr Brown yesterday confirmed that Air Jordan 18he would toughen up banking regulations to ensure small companies received fair treatment, with the threat of fines for those that breached the rules. The Financial Services Authority will incorporate the existing voluntary code for individual customers under its regulation, while also making a separate and largely toothless code for business lending statutory. Angela Knight, chief executive of the British Bankers' Association, said the move would give more certainty to customers and banks and said her members had been workingAir Jordan 18 with the FSA and government on the rules. But she said that she wanted the rules to be widely applied in the financial services industry. "Many different entities provide lending to people and to businesses and clearly these need to be included in any legislative requirements," she said. Additional reporting by Jim Pickard

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