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Mortgages - Mortgage Loans: What Hope for Those Facing Repossession?

Although this year has been predicted to be one in which a record number of homeowners would lose their homes as repossession sharply soars, Chancellor Alistair Darling has reassured worried households that the government would intervene to save them. How this will happen remains very unclear. But we all know that the hammer is dangling over the homes of at least 60,000 families, as official figures from the Liberal Democratic Party recently revealed.

Most borrowers, particularly those who have taken out home loans, have come under serious scrutiny in recent months following the persistence of credit crunch. In the same vein many banks and building societies, hoping to avoid the sort of crisis that led to the fall of some major banks in the US and UK, have in the last two months heavily reduced mortgage products and at the same time raised interest rates.

In order to revive the market and help the millions of people seeking to keep possession of their homes or get on the property ladder – first-time buyers in this case – the Bank of England released liquidity amounting to £50 billion. The deal, a landmark decision that was long overdue, would see the central bank swapping £50 billion of banks risky mortgage and other assets for easy-to-liquidate government debt. While the move is considered the most radical taken by any government to tackle credit crisis, fears are rife that if it fails tax-payers would be the worst for it and the entire mortgage edifice could end up crashing to crumbs.

However, the important thing about the decision is that it came at a time the ordinary borrower is hard hit from all fronts. Many of those whose short-term fixed rate mortgage deals come to an end this year have no hope of refinancing their deals. Many of the deals, especially two-year fixed rate have been taken off the market by mainstream banks.

Those that still would agree to short-term deals are charging higher interest rates in addition to withdrawing certain incentives, while imposing penalties. HSBC, for example, which came up with the deals it dubbed ‘Rates Matcher’ to help the 1.4 million people facing this predicament, is charging fees that are considered unbearably high to allow borrowers sign up with them for the same deals they had with their previous lenders. For this category of borrowers the travail is endless.

Until Liberal Democrats made the revelation last week we probably knew that there was a serious problem, yet no one went the extra-mile to find out the exact level of seriousness it has assumed. For many households, as the party’s spokesperson for communities and local government, Julia Goldsworth explained, affording even essentials has become a luxury as the costs of living hit the sky and credit crunch bites harder. Those who do not want to easily accept defeat and allow their homes to be repossessed try to keep repayments, but at the expense of basic needs.

Insurance firm, Axa, buttressed this point as it suggested that there were many families who simply cut-back on non-essentials in a bid to avoid debt.

There certainly has to be a way out of this logjam. And Ms Goldsworth thinks the government needs to forge a partnership with banks so as to help a good number of families escape repossession. Part ownership schemes and payment holidays, she argues, could help prevent the loss of homes.

On its part the government said there’s something in the pipeline to help homeowners escape this trauma, yet nothing concrete apart from the £50 billion rescue deal, appears to have been put on the table. But Chancellor Darling last week told MPs that intervention was necessary because money markets were not functioning properly and that there was lack of confidence even after billions of pounds had been injected into the system.