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Brown unveils mortgage help plan Brown unveils mortgage help plan
(10 minutes later)
People facing repossession will be able to defer part of their mortgage interest payments for up to two years under plans unveiled by Gordon Brown. People hit by the downturn will be able to defer part of their mortgage interest payments for up to two years under plans unveiled by Gordon Brown.
The plan is designed to give those who lose their jobs or take a big cut in their income an extended breathing space before their home is at risk.The plan is designed to give those who lose their jobs or take a big cut in their income an extended breathing space before their home is at risk.
The scheme will cover mortgages worth up to £400,000, the BBC understands.The scheme will cover mortgages worth up to £400,000, the BBC understands.
The Tories called on Mr Brown to say what proportion of payments would be covered by the scheme. The proportion of interest payments to be deferred, up to 100%, will be agreed between homeowners and their lender.
Mr Brown made the announcement during a House of Commons debate on the Queen's Speech, which took place earlier.Mr Brown made the announcement during a House of Commons debate on the Queen's Speech, which took place earlier.
The PM told MPs the eight major lenders had signed up to the plan, which is meant to cut the risk of homes being repossessed amid predictions repossession numbers could rise to 75,000 next year. The prime minister told MPs the eight major lenders had signed up to the plan, which is meant to cut the risk of homes being repossessed amid predictions repossession numbers could rise to 75,000 next year.
Mr Brown told MPs: "Hardworking households which experience a redundancy or significant loss of income as a result of the downturn will be able to defer a proportion of their interest payments for up to two years while they get their family finances back on track." Mr Brown said: "Hardworking households that experience a redundancy or significant loss of income as a result of the downturn will be able to defer a proportion of their interest payments for up to two years while they get their family finances back on track."
Government sources say they hope the move will not just reduce the number of homes repossessed but will reduce the widespread fear of repossession as well. He also announced government-owned lenders Northern Rock and Bradford and Bingley had joined Lloyds TSB in agreeing that repossession proceedings would not begin until households were six months behind on their payments.
The full details of the scheme - such as who is eligible and what proportion of mortgage interest payments would be covered - have not been finalised. He urged other "responsible banks" to follow their lead.
Government sources say they hope the moves will not just reduce the number of homes repossessed but will reduce the widespread fear of repossession as well.
The full details of the scheme - such as who is eligible and what proportion of mortgage interest payments would be covered - have yet to emerge.
But it is understood the government will underwrite interest payments, which will then have to repaid in full at a date to be agreed with the lender.
Insurance schemeInsurance scheme
One government source described repossession as "a small risk of something disastrous happening to you" which thus has a major depressing effect on economic confidence. The scheme could help a two-income family where one earner has become redundant, a homeowner who has suffered a significant loss of overtime or people who have had to take a lower-paid job, Downing Street said.
It comes as new estimates from the Council of Mortgage Lenders (CML) suggest repossessions will rise sharply to 75,000 next year. That would be almost as many as during the peak of the last recession in 1991. People may also agree to convert a repayment mortgage into an interest-only loan to take advantage of the scheme, the prime minister's official spokesman said.
The CML believes that repossessions, already rising steadily, will hit 45,000 this year. The plan is designed to boost the wider economy, with government source describing repossession as "a small risk of something disastrous happening to you" which thus had a major depressing effect on confidence.
As always with Gordon Brown, don't just look at the headline, look at the detail George OsborneShadow chancellor Q&A: Mortgage plan class="" href="http://www.bbc.co.uk/blogs/thereporters/robertpeston/">Robert Peston: How it works As always with Gordon Brown, don't just look at the headline, look at the detail George OsborneShadow chancellor Q&A: Mortgage plan
Currently, those on benefits have their mortgage interest payments covered for two years if their mortgages is below £200,000.Currently, those on benefits have their mortgage interest payments covered for two years if their mortgages is below £200,000.
The government's plan is effectively a government mortgage insurance scheme, which will work by the Treasury underwriting the extra risk that banks take.The government's plan is effectively a government mortgage insurance scheme, which will work by the Treasury underwriting the extra risk that banks take.
The banks will not need extra capital in order to cover the extended risk they take that people will default on their mortgages.The banks will not need extra capital in order to cover the extended risk they take that people will default on their mortgages.
The theory, therefore, is that the move will not reduce the funds available for other borrowers.The theory, therefore, is that the move will not reduce the funds available for other borrowers.
Shadow Chancellor George Osborne, for the Conservatives, said he would not comment until he had studied the announcement more fully, adding that the key would be how much interest would be deferred. In a worst case scenario it is thought the government would be exposed to £1bn in risk, with the cost to the taxpayer of the scheme likely to be about £100m, government sources suggest.
Shadow Chancellor George Osborne, for the Conservatives, said he would not comment until he had studied the announcement, which was not in the Queen's Speech, more fully.
"As always with Gordon Brown, don't just look at the headline, look at the detail," said Mr Osborne."As always with Gordon Brown, don't just look at the headline, look at the detail," said Mr Osborne.
And he said the government should instead consider a scheme to "keep people in work" such as the Conservative proposal to lend money directly to businesses.And he said the government should instead consider a scheme to "keep people in work" such as the Conservative proposal to lend money directly to businesses.
Mr Brown's plan was welcomed by Liberal Democrat leader Nick Clegg, who said his party had been proposing such a policy for months. Liberal Democrat treasury spokesman Vince Cable welcomed the scheme but said he wanted to study the small print before he was "satisfied that this actually covers the problem".
Last week, the major lenders formally agreed to a minimum three-month delay before starting repossession proceedings, although they argued this was standard practice in the industry anyway.
And the nationalised Northern Rock bank has adopted a policy of waiting six months before repossessing a mortgage borrower who has fallen into arrears.
Queen's speechQueen's speech
The bank is following the recent example of Royal Bank of Scotland, now under majority state control. It comes as new estimates from the Council of Mortgage Lenders (CML) suggest repossessions will rise sharply to 75,000 next year. That would be almost as many as during the peak of the last recession in 1991.
Northern Rock said it normally took 15 months to repossess a home anyway but the state-owned bank has been accused of being aggressive and recently admitted that it would account for 10% of all repossessions this year. The CML believes that repossessions, already rising steadily, will hit 45,000 this year.
The number of repossessions jumped by 12% in the third quarter of the year, according to CML figures, with 11,300 homes taken back in that period.The number of repossessions jumped by 12% in the third quarter of the year, according to CML figures, with 11,300 homes taken back in that period.
Earlier, in the Queen's Speech, the government said fighting the economic downturn was its "overriding priority" for the year ahead.Earlier, in the Queen's Speech, the government said fighting the economic downturn was its "overriding priority" for the year ahead.
In a slimmed down legislative programme, it unveiled proposed legislation aimed at preventing another banking crisis and protect depositors.In a slimmed down legislative programme, it unveiled proposed legislation aimed at preventing another banking crisis and protect depositors.
Families on lower incomes are to be encouraged to save more through financial incentives.Families on lower incomes are to be encouraged to save more through financial incentives.
And a voluntary code of conduct requiring banks to give customers notice if they plan to withdraw or alter credit facilities will be made mandatory, the government said, but this is not part of the Banking Bill.And a voluntary code of conduct requiring banks to give customers notice if they plan to withdraw or alter credit facilities will be made mandatory, the government said, but this is not part of the Banking Bill.
Other measures in the Queen's Speech include forcing the long-term jobless to make more of an effort to find work. Are you worried about repossession? Send us your comments and experiences using the form below:
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