London councils scrap mortgage rescue scheme ahead of schedule

Mortgage lenders say around 75,000 households have received debt advice through the scheme, which was set to close nationwide in spring 2014

Debt advice charities and lenders have warned that vulnerable homeowners could be in danger of repossession after councils in London removed a safety net for struggling borrowers ahead of schedule, claiming it was too expensive to deliver.

The £200m mortgage rescue scheme was launched in 2008 with the aim of helping struggling borrowers stay in their homes by offering interest-free loans and a sale-and-rent-back deal with housing associations.

Mortgage lenders say around 75,000 struggling households have received debt advice through the scheme, while 5,000 have received financial help.

The scheme is set to end across the country in spring 2014, and the Greater London Authority (GLA) had signalled it would pull out at the end of 2013. However, in mid-October it wrote to councils saying it would shut to applications with immediate effect and would only consider households that had applied and were “disproportionately affected” by the closure between now and the end of December.

The debt charity StepChange said that for a small number of acutely vulnerable homeowners the closure “risks exposing them to the tragedy of losing their home”.

One family that had asked Havering council for help to stay in a property they had owned for 30 years said they had received news of the closure as they reached the final stage of the application. The family, who did not want to be named, said: “We were told by the lady at Citizens Advice ‘you meet the criteria 100% – there is no reason why they can turn you down’. This allayed our fears.” However, several weeks later they received a letter saying the scheme had been scrapped.

“They have pulled the rug from under us. We know these things do sometimes come to an end early, but we thought they would have the decency to follow through on the people who were already in it.”

Havering’s cabinet member for housing, councillor Lesley Kelly, said the council was disappointed by the decision to end the scheme and would be putting the family forward for special consideration. “We know that some families are worried about their mortgage payments and we would ask that anyone who has problems should make an appointment to talk with our specialist debt advisors. Ways we can help include our private housing solutions scheme, which can assist families into private rented accommodation where there is no alternative.”

The GLA said the scheme was expensive to deliver and take-up was low, and it was reallocating funding to delivering more homes.

However, although the number of people who received assistance was much lower than the government had anticipated, mortgage lenders said the effect had been to drive people to take advice. Jackie Bennett of the Council of Mortgage Lenders said the scheme had “delivered positive benefits in keeping some people in their homes”.

On Thursday the CML said the number of repossessions across the UK was set to come in at less than 30,000 in 2013, below the 35,000 it had forecast at the start of the year, and that it would be revising down its prediction of 37,000 in 2014. However, Bennett said with interest rate rises on the cards, the scheme would be missed.

“Although repossessions have been coming in under forecast since the scheme’s inception, and are almost half what they were in the 1990s, the ongoing need for the scheme will be felt more acutely once interest rates rise,” she said.

“We urge any borrower who believes they may miss payments to speak to their lender at the earliest opportunity, so that options can be evaluated and planned. For lenders, repossession is always the last option.”

A spokesman for StepChange said the closure removed “an important strand of the mortgage safety net”, while the chief executive of Citizens Advice, Gillian Guy, warned that it came at a time “when we anticipate people will need it more than ever”.

She added: “Citizens Advice has seen around 2,600 inquiries about this scheme over the past year, our clients who use this scheme are some of the most vulnerable people in society, reliant on support networks in their communities, disabled people who have adapted their homes and families that need to be close to schools.”

A department for communities and local government spokesman said: “The mortgage rescue scheme has always been time-limited, originally scheduled under the last administration to end in 2011. Outside London, this scheme will continue to be open to new applications until March 2014, while support for mortgage interest will still be available until March 2015.

“Alongside this, our efforts to tackle the record deficit has helped keep interest rates down and meant homeownership is at its most affordable since 2008, and repossessions are at their lowest since 2009.”

Hilary Osborne

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