ROOF Blog

Millions of pounds of taxpayers’ money will be used to overpay mortgages after the Chancellor extended the Government’s mortgage rescue scheme for another six months at a fixed rate of 6.08 per cent. More than 200,000 people on certain benefits are covered by the scheme, which was set up to help families to avoid repossession. Industry figures suggest that about a third of homeowners are on standard variable rate and 15 per cent are on tracker deals. The average interest rates on these mortgages are only 4.1 per cent and 3.65 per cent respectively, well below the rate paid by the scheme.

Both the CML and the Bank of England agreed that mortgage lending edged up again in the last months of the year, against the usual seasonal downturn. The CML reported that gross mortgage lending reached an estimated £13.7bn in December, up 14 per cent on November. A rush of sales before the end of the stamp duty holiday and the prospective hike in VAT accounted for much of the improvement.

Thousands of households have taken out loans with interest rates averaging 825% during ‘the worst Christmas in a generation’ for illegal doorstep lending, according to a new report. ‘The Real Cost of Christmas’, commissioned by affordable housing provider Circle Anglia and written by the Financial Inclusion Centre, found that more than 100,000 of the UK’s poorest families will spend 2010 crippled with a combined debt of around £82m after borrowing money from loan sharks to pay for Christmas. The value of the loans is an estimated £29m, but average interest rates of 825% will mean that people end up paying nearly three times the initial amount they borrowed.

The Bank of England’s monetary policy committee on Thursday voted to keep rates unchanged at 0.5 per cent and to continue with its £200bn quantitative easing programme as further signs of stabilisation emerged across the economy. The decision was widely expected, with the Bank having signalled it intends to make big decisions on monetary policy only when the forecasts in its quarterly inflation report are available. February, therefore, could see the first change in the Bank’s monetary stance since its November decision to increase the scale of quantitative easing –- which has taken the form of purchases mostly of government debt, funded by the creation of money – from £175bn to £200bn. With about £7bn left of that left, most economists expect the Bank to halt the programme, having already slowed the pace from £75bn every three months to £50bn earlier last year to £25bn in November.

The number of repossessions orders taken out by mortgage lenders rose by three per cent during the third quarter of the year to 13,987, figures from the Financial Services Authority (FSA) have shown.

Despite the increase, the FSA said the number was ‘much in line’ with the average for the year as a whole and six per cent below the figure for the first quarter of the year.

The drop is likely to have been driven by interest rate cuts at the start of the year, which made mortgages more affordable, and increased government help for struggling borrowers.

The FSA said the number of borrowers who had fallen into mortgage arrears of more than 1.5 per cent of their outstanding loan had fallen for the third successive quarter, and at 46,000 was down 10 per cent on the three months between April and June and 30 per cent below the peak in the last three months of 2008.

Homeowners facing repossession or struggling to meet mortgage payments after losing their jobs will continue to receive extra support from the government following the pre-Budget report.

The government has said it will freeze the standard interest rate used to calculate its Support for Mortgage Interest (SMI) at 6.08 per cent for a further six months. It said the SMI scheme has benefited around 220,000 homeowners.

From April this year, the government said it would cover the monthly interest due on mortgages of up to £200,000 for borrowers who have been out of work for three months and were having difficulty meeting their payments.

Previously it only offered support to homeowners with mortgages of £100,000 or less.

MPs would be banned from receiving taxpayers’ money to pay the mortgage interest on their second homes, under proposals to be published next week.

Sir Christopher Kelly, the chairman of the Committee on Standards in Public Life, has briefed opposition party leaders about his report, which says that in future MPs will have to rent, not buy, their second home if they wish to receive taxpayer support.

Kelly is also to make it more difficult for MPs living in the south-east to claim for a second home, so more of them will have to commute to and from parliament.

It is possible he will rule that MPs living within a 60-minute commuting radius will not be able to claim for a second home, joining the small group of London MPs that are already banned from receiving a second home allowance.

Previously MPs could claim as much as £24,000 a year in mortgage interest payments on their second home, often allowing them to live in homes which were much larger than they required.