The Council of Mortgage Lenders (CML) has published its response to the consultation on the proposed homeowner mortgage support scheme, arguing the Government should guarantee the total deferred interest deferred by the borrower for up to ten years.
While the CML welcomed the plans, it warned a number of structural and operational questions had to be addressed, which may have a significant influence on the attractiveness and take-up of the scheme by both borrowers and lenders.
It suggested that if the Government covered the entire deferred interest accumulated, it would remove the risk of lenders feeling they have to seek repossession shortly after the end of the deferred interest period in order to trigger access to the guarantee, and give the household longer to clear the accumulated arrears.
The CML also called for concessions regarding the capital treatment of loans accepted into the scheme to be explored, highlighting the amount of capital that lenders will have to hold against loans within the scheme as a potential barrier to take up. It said the amount of capital that a lender has to hold for each mortgage in arrears is between 30 and 80 times that of a new mortgage.
"The future impact on borrowers' repayments may be very significant if they defer a high proportion of their interest, and the scheme is not without the risk of potentially unwelcome impacts on lenders," explains Michael Coogan, director general of the CML.
"However, for eligible borrowers who would otherwise face repossession it may make the difference between keeping or losing their home, while for lenders it makes longer term forbearance a less risky option.
He adds: "If the Government can find ways to address the capital treatment of loans within the scheme, and the period and amount of the guarantee for lenders, this would improve its attractiveness and likely level of take-up."IFAonline
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