Government plans to help homeowners

As the financial news headlines have been reporting for many months now many homeowners across the UK have been struggling over recent months. The past two years saw interest rates rise by 1.25% in total, with five base rate rises between August 2006 and July 2007.

This put increased pressure on homeowners who saw their interest rate and their mortgage repayments rocket over a relatively short space of time. However, those who had taken out a cheap fixed rate mortgage prior to the rate rises were comfortable in the knowledge that they would not be affected by the rate rises.

Nearly two years on, and thankfully the base rate has seen three cuts over recent months, with the Bank of England cutting rates three times since December 2007, taking the base rate back down to 5%. However, this is still much higher than when many homeowners took out their cheap fixed rate mortgages, and unfortunately many of these deals are now due to come to an end.

In the past homeowners whose cheap fixed rates were coming to an end would have been able to quickly find another competitive deal to minimise on the impact of rising repayments and interest rates. However, last summer saw the global credit crunch make its way to the UK and this has had a profound negative impact on the mortgage market.

For those due to come off cheap fixed rate deals in the coming months the chances of finding another cheap deal to replace their existing one are slim.

This is because lenders have withdrawn two thirds of mortgage products since the onset of the global credit crunch, and many have also put up interest rates on their remaining mortgages, making it increasingly difficult for consumers to get a better deal.

In addition to this lenders have hiked up mortgage arrangement fees, in some cases by around 96%, and have also increased the amount of deposit that they are looking for from borrowers. All of this spells bad news for consumers looking for an affordable mortgage.

With many homeowners facing a sharp and sudden rise in mortgage interest rates and repayments when their cheap fixed rate deal comes to an end there are fears that the already high level of repossessions could go through the roof, and this is something that the government has been trying to address.

The government has stated that there are plans in place to help those that are facing losing their homes. Amongst the steps that the government plans to take are the provision of free advice from professionals, free legal assistance where required, and additional training for local authority staff so that they can better assist consumers.

However, following a recent meeting with mortgage industry professionals, Alistair Darling and housing minister Caroline Flint failed to provide a great deal of clarity over exactly what provisions the government had made to support those in danger of losing their homes.

Caroline Flint was quick to point out that the situation today was very different from that in the 1990s, stating: “It is important to recognise we are dealing with an entirely different situation in the market from what was experienced in the early 1990s. The fundamentals of the housing market remain strong with high employment, low interest rates, and long-term demand for homes from first-time buyers.” She also said: “For the minority of owners who may need support and advice now, we want to ensure it is there for them in the right place and at the right time”

Following a recent meeting Flint also said: “We want to ensure there continues to be stability and fairness in the housing market, and that the support is in place for consumers who may need it right now.”

However, key banking industry figures have said that the mortgage market will continue to suffer for the time being, as the recent £50 billion mortgage rescue plan from the government could take some time to take effect.

One Treasury official stated: “I think the government - now that the Bank of England has made this intervention to address the liquidity problem - will have to focus its attention on how to support the housing market.”

The apparent lack of clarity over the plans that are to be put in place has also concerned some members of opposition parties, and one member from the Liberal Democrats recently said: “One of the possibilities being mooted…is that the taxpayer could have been tapped for additional money to provide additional benefits to people who are in mortgage arrears. We really need to find out exactly what has been happening in these talks so that the government isn’t making any more concessions at the expense of the taxpayer.”