Mortgage Rescue Scheme – A step in the right direction?

The Government has announced a series of measures to help kick start the property market and help lower the growing number of repossessions. The part of the package of measures designed to help those in debt is called the Mortgage Rescue Scheme.

The problem the government is trying to solve is a serious one. Repossession levels have risen dramatically since January of this year, with around 18,900 repossessions taking place within the first six months of the year. This is a massive 41% rise on the previous six months of the year. This is a 12 year high.

Under the scheme struggling families unable to keep up with their mortgage payments will avoid repossession and losing their home by selling their home and then renting it back.

Reactions to the plans varied: Leslie Morphy, chief executive of Crisis, said: "Only 6,000 of the most vulnerable homeowners are to be protected from repossession with the mortgage rescue scheme, whereas in the first half of 2008 we have already seen 18,900 repossessions. Things are only going to get worse.”

But there is a problem. The first is the scheme can only be used if you have equity in your home. However about £15,000 has been wiped from the value of the average British home since the credit crunch began. This is not great news for those who bought their new homes towards the top of the market in 2006-07, and took out a mortgage that did not require much of a deposit.

To make matters worse, a recent Morgan Stanley forecast predicted that two million homeowners could be at risk of negative equity if house prices fell by 20 per cent before 2010. The other problem is the scheme can only be used by homeowners that have managed their finances well and through no fault of their own, found themselves unable to pay the mortgage.

What does this mean exactly? If you have taken out a loan to buy some luxury items and that forms part of your debt you don’t get any protection? But let’s not be too negative, the governments announcements also included expanding free legal representation at county courts, more free debt advice, and their going to carry on on-going work with lenders to help ensure repossession is only ever a last resort.