Greater protection against mortgage repossessions, an extension to the Income Support Mortgage Interest scheme and more debt advice services for those moving into arrears on their mortgages have been unveiled by the Chancellor in his Pre-Budget Report as he attempts to kick-start the property market and wider economy.
No quick repossessions
All the major mortgage lenders have signed up to an agreement not to begin action for repossessions until borrowers have fallen at least three months behind in their payments, the Chancellor announced. And Income Support for Mortgage Interest is to continue at a rate of 6%, rather than to track downward base rate cuts.
The moves were supported by the Council of Mortgage Lenders (CML), which said that, in principle, it was right that there should be a standard three-month period of negotiation before lenders begin court proceedings. But, it warned, negotiations should be meaningful and not merely an obligation that delays legal action.
Just as important, argued the CML, are what it describes as the 'modest improvements' to the Income Support for Mortgage Interest scheme, which should assist some people in financial difficulty to repay their mortgages. CML believes a further extension of the scheme should be announced in next year's Budget, to assist the likely increased number of people who will have lost their jobs by then and have difficulty in repaying their mortgages.
More help for debt advice
Citizens' Advice welcomed the provision of an additional £10m for its bureaux, recognising the increased number of people seeking help after falling behind with their mortgages and other bills.
"We saw a 52% rise in our enquiries relating to redundancy in the six months from April to September this year compared with the same period last year, along with a 47% per cent increase in mortgage and secured loan arrears problems and a 20% increase in enquiries about Jobseeker's Allowance," explained Citizens' Advice director of policy Teresa Perchard.
Oiling the mortgage wheels
The Treasury also published with the Pre-Budget Report the review of the housing finance markets conducted on its behalf by Sir James Crosby, the former chief executive of Halifax Bank of Scotland. Sir James recommended to the Government that it provides guarantees for new mortgage-backed securities that can be bought in the wholesale markets, to increase financial liquidity for mortgage lenders.
The recommendation was accepted by Chancellor Alistair Darling, but can only be implemented if it is approved by the European Union as it potentially breaches state aid legislation.
In addition, a Lending Panel is to be established by the Treasury to report to the Chancellor, advising whether banks and building societies are continuing to approve mortgages and other lending to consumers and businesses.
Relief for empty properties
The Chancellor also announced a partial concession to critics of the abolition of empty property rates relief, a decision that has led to an increasing number of commercial buildings being demolished to avoid the payment of rates. For the 2009/10 financial year, the rateable value threshold for rates being paid will rise to £15,000. This will take 70% of empty business properties out of the rates net, estimates the Treasury.
Other measures announced by Darling included bringing forward government capital spending programmes to boost employment and the construction industry. This includes allocations for new social housing projects that were to begin in another two years and will lead to £775m of spending in each of the next two years on housing and regeneration schemes, including £575m in support for social housing projects.
Mixed reaction
The Pre-Budget Report drew a mixed reaction from commentators and housing analysts. Peter Williams, executive director of the Intermediary Mortgage Lenders Association, said that IMLA "broadly welcomes the housing market package", particularly the additional money for social housing and shared equity schemes. But Williams argued that the three-month moratorium on repossession orders was of little practical benefit, as it merely restates existing standard practice.
Williams was more positive about the recommendations of Sir James Crosby. "IMLA supports the findings of the Crosby Report and its proposals to guarantee mortgage-backed securities based on new mortgage lending and improve the availability of mortgage finance," said Williams. "Particularly welcome is the fact his recommendation covers issuance by all lenders, including non-deposit taking institutions and buy-to-let mortgages.
"This is good news and we hope the government will support this. Though we recognise the need to obtain approval from the European Commission for the guarantee scheme, it will take time to bring this proposal to fruition and we are concerned that more urgent action is needed to secure an increased flow of funds into the mortgage market now. It is our view that government may yet need to make a direct capital injection into the mortgage market."
Social housing boost
PricewaterhouseCoopers, the largest of the accountancy firms and a leading consultant in the housing sector, said that the boost to social housing was important. Richard Parker, partner and head of housing at the firm, said: "There is a significant need for additional funding for decent homes so the additional funding is welcome and should be relatively easy to inject. Some of the funding for rented homes could be used rapidly if it is applied to housing that had been initially built as shared ownership housing - but this may have limited economic impact - although it will reduce housing waiting lists.
"The £100m to support key housing and regeneration projects could have very significant benefits - particularly if it is applied as gap funding on large projects. It could unlock and kick-start large developments that have been stalled by current market conditions."
Criticism, too
A more critical tone was struck by Ross Bowen, managing director of Connells Survey and Valuation, one of the largest firms of surveyors. "The Government has clumsily sidestepped the most pressing issue where economic recovery is concerned - the housing market," said Bowen. "They underestimated the damage it would have as they left it to grind to a halt, and now they are underestimating the importance of getting it moving again. To make that mistake once was foolish, twice is unforgivable."
Bowen said that failing to take further action to provide greater liquidity for mortgage lenders could not wait while the European Union considers whether guarantees on packaged mortgage loans breached state aid rules. "The Crosby report has been a long time coming and the Government should have ensured the recommendations to free up mortgage availability could be implemented immediately," he said.
"They now need to take concerted action not only to boost confidence in mortgage backed securities as soon as possible, but also to look at other ways of stimulating mortgage availability and promoting activity in the housing market. Further interest rate cuts will be necessary and a full stamp duty holiday would help stimulate all sectors of the market across the UK."