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  • Mortgage Rescue Scheme in the UK

    map-uk If you live in England, are struggling to make your mortgage payments, and are at risk of losing your home, you might qualify for mortgage aid with the Mortgage Rescue Scheme.

    The Mortgage Rescue Scheme is a government sponsored program that aims to help the most vulnerable members of society, and their family members. It provides direct financial help for eligible home owners so they can stay in their home. This program is managed at the council level.. If you do not live in England there are also similar schemes in the rest of the United Kingdom; use the same link to contact your local council, and ask what program is available to you.

    The program focuses on “high-level priority” cases like pregnant women, parents, the sick and the elderly. If you or someone in your immediate family falls into this category you could qualify for financial help.

    The eligibility criterion of this program is designed to help low to medium income families that don’t have the resources to help themselves. It is also biased against home owners of expensive homes or whose homes have dramatically dropped in value.

    To qualify you must:

    1)      Not own a second home, this includes holiday homes and investments whether in the UK or abroad.

    2)      The market value of your home must be below than a level set by region. Ask your council what that level is in your area.

    3)      Your mortgage balance cannot be more than 120% of your home’s market value. For instance, if your mortgage balance is £200,000 and your house is only worth £150,000 you will not qualify. However if it had a current market value of £160,000 you would qualify.

    4)      Your household total income must be less than £60,000 a year. This includes all working members of your family.

    If you qualify for the Mortgage Rescue Scheme (MRS) you will have to meet with financial advisers of your local council. They will give you advice on how you can restructure your finances and manage debt as efficiently as possible. This will include an inspection and appraisal of your home. The MRS will then approach a Registered Social Landlord (RSL) to provide specific and practical help. There are two main avenues a RSL can use to provide financial help: A Shared Equity Loan and a Government Mortgage to Rent Program.

    A Shared Equity Loan is an interest only loan that is used to reduce your monthly payments to a manageable level. However, to qualify you must have a 25% equity on your mortgage balance. This means the market value of your home must be 25% higher than the amount you owe on it.

    Government Mortgage to Rent programs is a drastic measure for homeowners who cannot afford their mortgage but want to stay in their home. In this scheme the RSL actually buys your home for 97% of its market value and rents it back to you for a reduced rate.

    Mortgage Rescue Scheme and Your Home: The Facts

    You cannot pay your mortgage; letters from your lender threatening to repossess your home litter your kitchen table. This is the nightmare of all homeowners; especially homeowners with a family to look after. Unfortunately the housing and credit crisis has pushed too many families to this situation. There are no quick fixes if you are at risk of losing your home. But there are government programs you can join to protect your house, and avoid foreclosure.

    One of these programs is the Mortgage Rescue Scheme. This scheme was created in January 2009; it helps vulnerable groups like families with dependent children, the elderly and other groups that will be entitled to homelessness aid if their home is repossessed.

    What should you do if you are at risk of losing your home?

    Talk to your lender. Explain your situation, and ask for help. Help could mean a loan modification that reduced monthly payments by reducing interest rates, extending the loan’s term, or reducing the mortgage’s balance. Some lenders will also provide a forbearance period where you do not have to pay your mortgage to allow you to reorganize your finances.

    What can the Mortgage Rescue Scheme do for you?

    The mortgage rescue scheme has two options: the Government Mortgage to Rent program, and the Shared Equity program. The Government Mortgage to Rent is for vulnerable families who cannot afford their mortgages. The government assigns a Registered Social Landlord (RSL) to buy the property from the homeowner and rent it back to them for an amount they can afford. Any money left after paying for the mortgage and other loans attached to the house can be used to pay other household debts. Under this program the homeowners no longer owns the property, but can continue to live in it.

    Shared equity is a less drastic program. It is for homeowners that can continue to pay their mortgage if their payments are lowered to match their income. The government assigns a Registered Social Landlord to grant the homeowners a loan that is used to reduce mortgage payments.

    What is the timeframe for the Mortgage Rescue Scheme?

    It all depends on each case, but if the RSL and the lender come to an agreement it all can be closed in four to twelve weeks.

    Will this affect other benefits?

    No. The Mortgage Rescue Scheme does not affect a households eligibility for other benefits. The only exception is in the case of Shared Equity loans where entitlement for Support for Mortgage Interest (SMI) is reduced to reflect the new loan.

    As you can see this scheme is not for everyone. In all likelihood you will lose ownership or control over your home; although you and your family can continue to live in it. This is not a program for borrowers who won’t pay their loans, but for those who want to keep their homes but can’t.

    UK mortgage rescue plan: What Are Your Options?

    The property market has been through a major slump since the end of 2008. This has affected other parts of the economy causing family incomes to drop. Thousands of families now face repossession of their homes in the United Kingdom. Many schemes have been created to deal with this problem. Three are of special interest: the Homeowner Mortgage Support Scheme, the Mortgage Rescue Scheme and the Court Protocol.

    If you are struggling to pay your mortgage it is important you understand what your options are when searching for help. Some programs require you to sell your home in order to continue living in it.

    Homeowner Mortgage Support Scheme

    The Homeowner Mortgage Support Scheme started in April 2009, and covers the entire UK. This program is designed to reduce your mortgage interest payments by up to 70% if your income has suddenly dropped for reasons out of your control. For example, if you are made redundant, or your employer reduces your working hours you can apply for Homeowner Mortgage Support. To qualify your mortgage balance must be less than £400,000, and you must have less than £16,000 in your savings accounts. Unfortunately only a few banks are offering this scheme; those that received government assistance at the height of the credit crisis. Contact your lender and find out if this program is available to you.

    Mortgage Rescue Scheme

    The Mortgage Rescue Scheme is being applied throughout the UK, in England, Wales, Scotland and North Ireland. In England the scheme is set to cost £280 million over two years. The government claims 6,000 families will benefit from this program, although current figures only show a fraction of this number have completed the program. The scheme is designed to help the most vulnerable groups at risk of losing their homes, and that will be entitled to homelessness assistance. The scheme started in England in January 2009 and was extended in April 2009 to help those in negative equity. Negative equity occurs when your mortgage balance is greater than the market value of your home. Applicants can have a negative equity of up to 120%. This means that if your home is worth £100,000 the Mortgage Rescue Scheme can offer up to £120,000 to pay your mortgage balance.

    This scheme uses not for profit lenders that buy the mortgages of struggling borrowers and allow them to stay in their homes for an affordable rent. The catch in this scheme is that only certain borrowers are eligible: families with children, the elderly, and other vulnerable groups that will receive homelessness assistance anyway if their home is repossessed. The other catch is that you lose ownership over your home.

    Court Protocol

    Court Protocol is not so much a mortgage assistance program, but a procedure lenders must follow before repossessing a borrowers home. This procedure includes informing borrowers of how much they owe and what they must do to avoid repossession, considering requests for loan modifications and responding to these requests within ten working days.

    Contact information on your local council to apply

    If you are facing financial problems and you are a homeowner, you must take urgent measures to protect your home from repossession. However, not all situations require the same reactions. The UK government has created several programs and rescue plans that adapt to your personal circumstances. In our last article we divided repossession circumstances into four scenarios:

    Program 1. You are struggling to pay your mortgage. You still haven’t fallen behind in your payments, but you fear you may soon.

    Program 2. You have missed some mortgage payments. Your lender still hasn’t threatened with repossession, but you fear he might soon.

    Program 3. Your lender is threatening with repossession.

    Program 4. You have received papers requesting you to go to court.

    In our last article we already set out a plan for homeowners in the first scenario. This article focuses on what to do if you have missed some mortgage payments.

    First Step: Take the initiative. Now is not the time to play the victim. Take control of the situation and use the tools at your disposal to find a long term solution to your financial problems.

    Second Step: Get prepared. Now you have already missed some payments, time is really of the essence and you need to be prepared before you meet with potential lenders or government agency officers. Getting prepared means preparing a detailed budget that includes your income and fixed expenses. It also means assessing what options are available to you. The best way to find this out is to contact an independent advice agency. Click here for a list of advice agencies.

    Third Step: Find out what government programs are available. Usually borrowers are encouraged to contact their lenders first, but you are already behind in your payments and need to fast-track things a little. Click here for a list of UK government housing programs. These include SMI, support for mortgage interest, and HMS, homeowners mortgage support.

    Fourth Step: Talk to your lender. Do this as fast as possible. You may be surprised out how empathetic they are, and empathy aside, lenders know they are required by law to show a willingness to find an alternative solution to repossession before they go to court. This requirement is set by the pre-action protocol law on lenders. Be honest to them. Present all the facts clearly. They can only help you if you provide an honest assessment of the situation.  Your options include changing the terms of your loan, reduce payments in the short term until you get back on to your feet or add the money you owe in mortgage payments to the balance of your mortgage, among other possibilities.

    The possibility of repossession is enough  to frighten the most stable of households. The UK government would have you believe you are not alone, that you can get the help you need through a government program. Is this true? It may. Although the housing programs created by the UK government  in 2008 to help homeowners affected by the real estate crisis of 2008 have enjoyed mixed results, if you meet the program requirements and follow instructions, you could avoid a repossession. As of July 2011, over 330,000 in the United Kingdom have received help and advice that has helped them avoid repossession. The key is to create an action plan that fits your circumstances.

    The UK government has divided housing programs into four main areas depending on the type of help they provide and the urgency of the situation. We can divide these programs by the situation you currently find yourself in.

    Program 1. You are struggling to pay your mortgage. You still haven’t fallen behind in your payments, but you fear you may soon.

    Program 2. You have missed some mortgage payments. Your lender still hasn’t threatened with repossession, but you fear he might soon.

    Program 3. Your lender is threatening with repossession.

    Program 4. You have received papers requesting you to go to court.

    Each of these situations require a different action from you, as well as a different government housing program. This article will discuss program 1 and our next article will discuss programs two to four.

    Program 1: You are struggling to pay your mortgage.

    You are certainly not alone. The current financial situation has caused many families who were previously financially stable to struggle to meet their financial commitments. The problem is that the road from struggling to repossession can be mighty short if you don’t take measures sooner rather than later. These are the steps the UK government recommends you take.

    Step 1. Do not ignore the situation. The ostrich technique of sinking your head in the ground will not work. Your financial problems will not go away just because you ignore them. Act quickly, act now and you will have a much better chance of keeping your home.

    Step 2. Prepare a budget. Find out how much you owe and compare it to your income and your fixed expenses. If you need help preparing a budget or getting a handle on your finances, contact an approved independent advice agency.

    Step 3. Speak to your lender. This is the number one mistake borrowers make: not contacting their lenders. If you contact your lender while you are in the struggling period , well before you miss a payment, you give the message you are a responsible borrower who is serious about finding a solution for their short term financial problems. Ignore your lender and they will fear the worst and go on the offensive. The UK law on repossession forces lenders to follow pre-repossession proceedings and use repossession as a last resort. The fact you contact them and ask for assistance will support your case if you do have to go to court.

    Step 4. Apply for a government sponsored support program. There are two main options: the support for mortgage interest program and the homeowners mortgage support program. Mention these programs to your lender when you talk.

    The FirstBuy scheme is the UK government’s latest effort to help low- to medium-income families who wish to buy their first home, but are unable (or find it difficult) to do so because they do not have the savings to pay the 25 per cent down payment most lenders require. For instance, a typical lender will gladly lend you (if you have a reasonably good credit rating) 75 per cent of your home’s value. However, most lenders require you to come up with 25 per cent by yourself, 5 per cent as a deposit, and 20 per cent as a down payment. Some lenders will not even let you pay for this with another loan for fear two loans will prove too much of a financial burden for your monthly budget. The FirstBuy scheme sidesteps these problems by providing a home equity loan of 20 percent of your home’s value (5 per cent you still have to find yourself). The beauty of this program is that it is paid as a partnership between the government and housebuilders and it does not have to be paid until you sell your home.

    The fact the financial burden is shared by both the government and homebuilders is good news for taxpayers, and many builders are happy to pay their share if it allows them to unload empty new homes which have already been built. The second benefit of the loan—that it does not have to be repaid until you sell your home—solves the problem of increasing the financial burden on families who can’t afford a mortgage and a second home equity loan to pay for the down payment and deposit element of the home purchase.

    The government has set aside 500 million pounds for this scheme and plans to reinvest the money repaid by homeowners that sell homes bought with FirstBuy equity loans. The scheme hopes to help over 10,000 first-time buyers take their first step onto the property ladder over the next two years. This program is set to start in September 2011, but you can already show your interest and start taking the necessary steps to qualify for a FirstBuy loan.

    To register find a HomeBuy agent near to you and express your interest in the program. The agent will explain the requirements you need to meet and the documentation you must provide. For a list of HomeBuy agents by region click on this link.

    If you live in the United Kingdom and would like to get your foot on the first rung of the property ladder, there is good news for you. The good news comes from a new scheme set up by the government and house builders for British homebuyers. One of the biggest problems British families who wish to buy a home face is the lack of savings to pay for a down payment. They might have the monthly income to pay for a mortgage but not enough savings to pay for 10 to 20 percent of the house’s price as down payment. This is not only in a nuisance for families wishing to own their own house, it also slows down the recovery of the real estate sector, which needs all the eligible buyers it can get its hands on.

    The UK government and house builders associations have teamed up to help families pay for a home’s down payment without increasing their risk of defaulting on monthly payments and having their homes repossessed. What are the terms of this program? How can you qualify? What will the down payment loan cost you? This two-article series will answer this and other questions you may have if you are in the market for a new home.

    The program is called FirstBuy Scheme. It is available only to people who are to buy their first home. People who already own a home do not qualify for this program. So what does this program offer? FirstBuy offers first-time homebuyers a 20 per cent equity loan. What does that mean? A 20 per cent equity loan is a loan of 20 per cent the purchase price of the home secured by the property itself as collateral. For instance, if the home you wish to buy is worth 200,000 pounds and you qualify for FirstBuy, the scheme will grant you a home equity loan of 40,000 pounds. With most banks in the UK willing to offer 75 per cent mortgages to applicants with fair to good credit ratings, the 20 percent loan will help pay for most of the pending 25 percent first-time homebuyers had to cover themselves. Now first-time buyers under the FirstBuy scheme must only come up with the a 5 percent deposit.

    The best part of the program is these loans do not have to be paid until (and if ) the homes are sold. This means your monthly housing payments will not increase one bit if you receive a FirstBuy equity loan. Only if you sell your home do you have to repay the equity loan and then you should have enough to pay from it from the equity you have built into your home through the years.

    How can I register for FirstBuy? How much money has been set aside for this scheme? We will answer these and other questions on this program in the next article on this series on the FirstBuy scheme.

    Despite rumors that the program would be “killed” due to budget restrictions, the Mortgage Rescue Scheme is still alive and kicking thanks to 200 million pounds earmarked for its funding during the next two years. This popular although underused program is designed to help low-income and vulnerable families avoid repossession by either buying their homes and renting them back at a reduced price or by buying a percentage of the home and reducing the mortgage payments. However, March 2011 has seen some changes brought on the 2009 program specifications. If you are considering applying for a mortgage rescue program, these changes will affect you. However, if your application has already been processed by a registered provider, these changes will not apply to you.

    Purchase Rate Changes

    The main change to the program is in the purchase rate the Government requires registered providers to buy your home at. Previously, registered providers were required to pay 97 percent of the market value of your home. Now this rate has been reduced to 90 percent. This translates in huge savings to lenders and providers. To illustrate, if your property has a market value of 100,000 pounds you would have previously received an offer of 97,000 pounds for your home. Now, if your application is approved, you will receive a maximum of 90,000 pounds. This means homeowners will lose 7,000 pounds for every 100,000 pounds their property is worth.

    The Purpose

    Why has the Government reduced the purchase rate of homes whose market value in most cases has already dropped from its previous levels? The purpose is to ensure more people can qualify for the program and receive the help they need. However, the reduction in purchase rate does bring into question if this scheme is that helpful. The answer is this question is certainly a good option for homeowners who are in negative equity and want to keep their homes. However, if you have some equity on your home, this reduction may cause homeowners to reconsider if the Mortgage Rescue Scheme is in their best interest. Notice there are other options for homeowners, especially those whose homes are not yet underwater. This solutions include loan modifications with lenders, mortgage refinancing and other Government programs such as the Support for Mortgage Interest program.

    If you are at risk of losing your home, contact your local housing authority and ask for a non-profit and independent debt advice officer and ask for personalized advice on the best program in your situation.

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