Safety net for struggling home owners shrinking
THE GOVERNMENT’S financial safety nets for UK homeowners have been shrinking over the past decade, a report has found.
A safety net for individual home buyers in the UK was put in place during the deep recession of the early 1990s when large numbers of mortgage borrowers lost their homes.
This was strengthened after the global financial crisis of 2008, but most of the funded measures are now being withdrawn.
Support for Mortgage Interest (SMI) will be switched from a grant to a repayable Loan for Mortgage Interest (LMI) in 2018, which is a less generous form of support, according to trade body UK Finance that commissioned the report.
In addition, by 2022 there will only be limited government financial support for home buyers in distress, and this will mainly be in the form of loans for those not in work.
UK Finance said the work allowances for home buyers under the Universal Credit scheme will provide much more limited support to home buyers in part-time and low-paid work than available under the current tax credit and welfare schemes.
“The ‘system’ will be reliant upon individuals and their actions as well as on lender forbearance within the legal and regulatory safeguards that have been built into the operation of the mortgage market,” it added.
The report questions whether this is enough, given where the UK is in the interest rate cycle, the tensions that exist within the housing market around affordability and the uncertainties surrounding Brexit.
It recommends that the government review the home owner safety net situation “systematically and comprehensively”.
To date, the impact of reducing the scope of the safety net has been muted.
Conduct and regulation introduced after the financial crisis means the current mortgage market is better insulated from systemic risks, which reflects the contraction in lending to those deemed to be higher-risk borrowers and the imposition of stress tests that limit the scale of household exposure.
However, the report said the protection offered by reduced interest rates since 2008 may now be under threat, and the more rigorous rules for entry to the sector “cannot remove inherent risks to mortgage borrowers resulting from unforeseen changes in individual circumstances”.
UK Finance’s head of mortgage policy June Deasy said lenders have responsibilities to help manage the consequences of diminishing support for home-owners in difficulty.
“They will always work with borrowers to help them manage a period of temporary difficulty, and avoid possession wherever possible,” she said. “Borrowers are also encouraged to talk to their lender at the earliest opportunity if they experience financial difficulty.”