Mortgage Support
Homeowners Mortgage Support
What is Homeowners Mortgage Support?
Homeowners Mortgage Support (HMS) is a
Government initiative to help people at risk of repossession. It is
for people who’ve recently experienced a sharp drop in income:
perhaps because they have had overtime cut or hours reduced.
It is a last resort, after people have explored all other options
with their lender.
What does it involve?
Homeowners Mortgage Support enables you to
postpone part of your interest payment for up to two years.
The money postponed is added on to the remaining balance of your
mortgage, to be paid back when your situation improves. All
lenders will work with households who are having difficulty paying
their mortgage to help them avoid repossession. This is known
as ‘forbearance’. HMS is a type of ‘extended forbearance’
which means lenders are offering longer than usual for borrowers
having difficulties to get back on their feet.
Is it a payment holiday?
No, because you have to keep paying as much as
you can afford each month. Homeowners Mortgage Support would
reduce your monthly payment for up to two years. But any
money you do not pay now has to be paid off eventually.
Aren’t there risks in doing
that?
Yes, there are risks as well as
benefits. The main risks are that:
· By
taking advantage of Homeowners Mortgage Support, you are adding to
your debt, because you are not paying all of your monthly payment
and interest will be charged on the payment you have
postponed. Overall, you will end up paying more than when you
took out your mortgage.
·
You must be confident that your financial circumstances will
improve and that you will be able to manage increased payments in
the future
· If
you do not keep up with your reduced repayments, then you may still
be at risk of repossession
· If
you are repossessed in the future, your debt may be larger because
you have deferred some of the payments and your home may have
declined in value owing to the changing housing market. If
your home is then worth less than your mortgage, you may still owe
the lender money even after you have been repossessed.
Together with your lender, you need to decide
if the potential benefits outweigh these risks. Independent
money advice can also help you decide – and some lenders will say
that you must get money advice before you can apply.
Will this help me avoid
repossession?
HMS may reduce the risk of repossession,
because you should find it easier to keep up with your reduced
monthly payments and the scheme gives you time to get your finances
back on track.
But it can’t eliminate the risk
entirely. If your financial situation worsens, or if you are
not able to return to increased payments after two years, your home
may still be repossessed.
What would my monthly payments be when
I am on the scheme?
That depends on your individual
circumstances. Your lender will take into account your
interest repayments at the moment as well as your new financial
circumstances.
As a minimum, you will have to pay back thirty
per cent of the interest due each month. But it is in your
interest to pay back as much as possible.
How do I pay back the money I’ve
postponed?
Individual lenders will decide how this money
is to be paid back. Your lender will work with you to agree a
reasonable and affordable repayment schedule to pay off your
mortgage plus any amount that you have deferred. Some
will extend the term of your mortgage. Some will spread out
repayments over the existing term.
Is my lender taking part?
The first lenders will be offering Homeowners
Mortgage Support or an equivalent from April 21st. Others
will soon follow suit. Check www.direct.gov.uk/HMS, or call
your lender to find out they are offering HMS or an
equivalent.
Can anyone sign up?
No: this is a short-term solution for people
for people who have had an ‘income shock’ but who believe they can
get their finances back on track reasonably quickly.
Lenders may also have other terms and conditions: for
example, that your mortgage and any other loans secured against
your home must not be more than a certain amount; or your savings
must be below a certain level. You will need to check these
details with your lender.
Does it matter what my interest rate
is?
No, having a high interest rate does not
automatically make you ineligible for the scheme. But you
must be able to pay at least thirty percent of the interest
due. If your lender believes that you are eligible for this
support, then they will explain how much you are able to postpone,
and how much you would pay back each month.
Do I have to switch to an interest
only mortgage?
Yes. If you are not already on an
interest only mortgage, then you will need to do so.
Homeowners mortgage support only lets you defer your interest
payments. Transferring to an interest only mortgage will also
help reduce the payments overall.
Over the long term, you will need to make
arrangements for paying back the capital too. In most
circumstances, that would mean returning to a capital repayment
mortgage once you have left the scheme.
Does it always last for two
years?
No. Two years is the maximum amount of
time you can make the reduced repayments, but if your circumstances
change, you will need to look again at whether this is still
appropriate. For example, if your financial situation
improves, it is in your own interest to pay more back each month,
and return to normal payments if possible.
If your circumstances worsen, and you can no
longer keep up with these lower repayments, you and your lender
will need to revisit whether another option – like mortgage rescue
– might be more appropriate.
Why is money advice so
important?
Your lender wants to be sure that you have
fully understood all the risks as well as the benefits of joining
the scheme. Some will require you to have money advice before
you can apply.
Independent money advice will help you
appreciate all the different implications so that you can make an
informed choice. They cannot tell you whether or not you
should apply: that is ultimately your decision.
Money advice covers general debt advice, as
well as advice about mortgages. So they can also advise you
on ways to improve your overall financial situation: for example,
by helping you work out a suitable budget or helping you apply for
benefits, if appropriate.
Is this my only choice?
No. Homeowners Mortgage Support is just
one option for people in particular circumstances. If you are
worried about keeping up with your mortgage payments, the first
thing to do is talk to your lender, who will help you explore the
options. For example, they may be able to offer you a payment
holiday or work out an alternative payment plan. There are
also other Government schemes available, depending on your
circumstances.
I think I’m eligible, but my lender
won’t let me sign up. What can I do?
Your lender ultimately has discretion over to
whether to let you participate. For example, if they don’t
think your earnings will return to the same level, and that you
won’t be able to keep up with repayments over the long term, they
may not let you cut your repayments. But they must still
explore all other alternatives before starting repossessions
proceedings.
I’ve got other loans secured against
my house, as well as my mortgage. Can I still
apply?
Yes, but only if all the lenders involved
agree. You, your independent adviser and your lenders would
need to develop a sensible repayment plan so that all lenders are
receiving regular payments. How much you must pay to each
lender will depend on your individual circumstances. You will
need to discuss the details with your money adviser who may be able
to help you negotiate with your
lenders.
I’m in negative equity – can I still
apply?
If you are already in negative equity you are
not automatically excluded from applying. However, you, the
money adviser and your lender will need to consider carefully
whether HMS is right for you. It will increase your debt and
may leave you in a worse position than you are in now.
Is there any charge for Homeowners
Mortgage Support?
There is no charge to apply.
But you may be charged other fees, depending on the terms of
your original mortgage contract. For example, if you have
gone into unauthorised arrears, a lender may charge you for
that.
Additional information about the options available to help you
if you are struggling with your mortgage are available to view in
the Government's worried
about your mortgage booklet.
This webpage was updated on
7/18/2011