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Taxpayers' mortgage guarantee

Robert Peston | 17:03 UK time, Wednesday, 3 December 2008

Gordon Brown has just announced a scheme which he hopes will lead to significantly fewer repossessions next year than the 75,000 currently expected by the CML.

It's an attempt to provide assistance for two years to those families which suffer a fall in income as a result of the UK's economic woes.

The scheme is probably best explained by way of an example.

Let's say Mr and Mrs Slightly-Stretched have a £400,000 mortgage, which is the biggest mortgage allowed under the government's new bailout scheme.

Both have jobs. Rory Slightly-Stretched is a manager in the building industry and Melissa works as an estate agent.

Toward the end of this year, he's made redundant and her income collapses.

So they are no longer able to keep up the payments on their mortgage.

They then talk to their bank and calculate that they can only pay £5,000 a year of the £20,000 annual interest payments they're supposed to make (I am ignoring principal repayments).

In those circumstances, their home is seriously at risk: the bank may well decide to seize their home and sell it.

What's happened today is that the prime minster has made it less of a financial strain for the bank to leave the Slightly-Stretcheds in their home, for a maximum of two years (which the government hopes will be long enough for Rory and Melissa to get back on their feet, in a financial sense).

What Mr Brown has announced is that if the £15,000 a year which the Slightly-Stretcheds can't pay is added to the principal they owe - if the bank allows the interest to be rolled up, to use the jargon - there will be no risk for the bank, because the Treasury will guarantee that £15,000.

Or, to put it another way, the taxpayer will promise to pay back the bank that £15,000 if the Slightly-Stretcheds find themselves unable to do so. So that sum of £15,000 will become a contingent liability of the public sector.

In this notional case, taxpayers would end up being liable for £30,000 (£15,000 for the two-year life of the scheme).

But, to repeat, the £30,000 would only end up being a genuine cash cost for us as taxpayers in the event that the income of the Slightly-Stretcheds were never to recover or the value of their property were never to rise above the value of the mortgage.

It's all quite complicated, but the banks plainly think that the scheme has merit, since eight of the biggest have signalled that they'll back it (or so I'm told).

However, the scheme is not completely free for the banks, in that I understand they'll have to pay a fee for the guarantee. Also, there is a cost to banks of not repossessing from the incremental capital they have to allocate to any mortgage when the earning power of the relevant borrower collapses (sorry if this is a bit technical).

On the other hand, the legal and admin costs of repossessing are always pretty big, so banks don't like to repossess if they can possibly avoid doing so.

In other words, Brown's mortgage wheeze could lead to a serious fall in the number of homes repossessed next year - though there must be a fear that a repossession bulge will simply be delayed for two years rather than eliminated altogether.

You'll want to know what the cost of all this for the taxpayer would be. For what it's worth, my calculation is that it'll lead to taxpayers guaranteeing somewhere between £900m and £1.4bn of rolled up interest (the Government is saying around £1bn).

Which, in the context of the £120bn or so that the government expects to borrow next year, is almost a rounding error - and some will say is cheap at the price, if it were to prevent 20,000 or so families being evicted next year (but see below).

UPDATE 19:00

I've become a bit wary of the Government's claim that the eight biggest banks have backed the mortgage-guarantee scheme, having spoken to a couple of them.

They're not prepared to attack it in public. But they're not sure it will have much of an impact, unless they are strong-armed into keeping the genuinely feckless in their homes - which the banks feel would be a bad thing.

Also, Margaret Beckett, the housing minister, has just said on BBC Five Live that a bank has estimated for the Government that the scheme will help perhaps 9,000 families who would otherwise have lost their homes.

That's rather smaller potatoes than the Prime Minister implied - although, as Mrs Beckett also said, the existence of the scheme may alleviate the anxiety of many more hard-pressed families.


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  • Comment number 1.

    Mr Prudent a hardworking taxpayer who has no debt, has savings, has a pension plan, has lived within his means on a private sector job and taken the hurt of those flashing their 'unrealised profits' from asset appreciation - raises his hand and says, "Mortgage Guarantee for the feckless, just put it on my bill Mr Brown"

  • Comment number 2.

    I think it is a good idea. It is an "air bag activation system" during this economic crash. Or a "shock absorbing mechanism" to give it another auto analogy.

    However, it will only slow down the inevitable.

  • Comment number 3.

    Mr Peston,

    Contrary to what you may expect I think this is excellent news.

    It removes an amazing amount of stress from the workforce.

    They can become more mobile and flexible.

    These are intangibles but deadly impotrtant intangibles to the country

    I like this policy.

  • Comment number 4.

    I know that this is intended to stop people from being chucked out of their homes, but if the bank delays a repossession in a falling market, doesn't it also risk getting less money when it finally does sell it off? And since tax payers own a fair bit of the banks that risk is transferred onto all of us.

  • Comment number 5.

    And, Mr Peston, now the bloggers cant accuse you of never posting good news :)

  • Comment number 6.

    Hang on a minute, I was talking to a chap the other day who has forty B&B interest only 'borrow to let' mortgages.

    He told me that he is sitting on £1m of unrealised profits - when the market returns to the normal 2007 levels - fundamental demand you know. I figure he had 10% equity at that point.

    Will he be able to roll over 40 mortgages? Or just one? Is there an upper number of mortgages? What about the Wilsons 900 mortgages?

  • Comment number 7.

    This is a good scheme.
    Everything must be done to stop repossessions ending up in a fire-sale.
    Fire-sales cause an immediate massive loss to banks, and now taxpayers.
    The losses under this scheme are tiny by comparison.
    At last, at last, governments, banks, estate agents and the public now realise the huge dangers in over-pricing and mis-selling property, the root cause of the entire crisis.
    Regulation and control must be rigid in future.
    The free-for-all in property must never happen again.
    Property ownership and even buy-to-let are a great idea IF THE PRICE IS RIGHT.
    There are many people who buy property simply because it makes money, and this scheme will not affect them, they will still run away.
    Controls, Gordon and Mervyn, controls.

  • Comment number 8.

    This is a transfer of risk from homeowners to the taxpayer. This seems wrong. The housing market will wait for a delay in house prices falling - and paralysis will be extended. Why should the taxpayer subsidise these risks - the only answer is that this will delay pain to voters until after the next election. The cost will be to the housing market and to taxpayers - but hey by then who will remember that?

  • Comment number 9.

    Two years should see Gordon through the coming election but it won't resolve the issue. It merely puts off the evil day.

    The assumption is that the economy will be back on track in two years. Who is kidding who?

    We already know this is going to be worse than the Nineties and that took five years for any significant recovery to get in place. It was the surge of positive feeling that engendered which brought this mad government into power in the first place. Remember when `things can only get better'? Indeed!

    So what happens in year three? Dispossession? Quite possibly because by then the property will be worth half the mortgage on it and who on earth would want that millstone round their neck.

    No, this is a ruse to get Gordon re-elected just like all the other so-called initiatives to help the economy. Vote Gordon or the Tories will do something nasty to you!

  • Comment number 10.

    smart move

  • Comment number 11.

    Here we go again.

    Let’s look at your example but with a few tweaks.

    Price 450,000 August 2007
    Mortgage 400,000

    Value December 2009
    450,000 minus 15% say (and in this market you will be lucky)
    Interest rolled up let’s say 30,000 as you did. New debt 430,000 ignoring compounding.

    Value in two years, December 2011 assuming only 15% further drop net (and at present you will be very lucky.)
    382,500 minus 15%

    Thus net negative equity 430,000 minus 325,125 is 104,875 who is going to cover this?

    Oh silly me, the government.

    Oh no!!! Silly silly me the government does not pay anything. You do, and I do, the ordinary taxpayer.

  • Comment number 12.

    Robert, you are describing an American "Pay Option ARM" with the addition of a government guarantee of the negative amortisation. Ask the Americans how well that kind of product worked out, or the banks that are forecasting default rates of over 40%. Quiet for years, then an avalanche and the banks which specialised in them went bust.

    The taxpayer stands to lose HALF the £900-1400bn you expect to be covered by this guarantee on the basis of recent experience.

  • Comment number 13.

    ..but two questions:

    what happens to principal payments (as most mortgages are amortising). do these get deferred as well?

    what happens to the large number of mortgages that have been securitised - i.e. sold to spvs and no longer held by the bank that made the original loan? i thought one of the big problems with securitisation was that the new owners have no relationship with the borrowers and are not incentivised to renegotiate terms in order to avoid repossessions even though this can result in a higher recovery value to the investor..

  • Comment number 14.

    There is a typo in my previous post: it should have read £900m-1400m. Half of which, the market says we will be throwing away.

  • Comment number 15.

    Hmmm. Not so sure about this. What are the impact of laws of unintended consequences here.

    Take one 'together' 125% mortage owner.

    No hope of making payments now, property now 40% negative equity at least.

    Enter the Government, with a gaurantee to Northern Wreck that for next 2 years, payments can be made with assistance. bank insures itself against loss?

    2 years time, property now 50% underwater at least. bank forecloses, very costly, loses its shirt, along with the 'extra' taxpayer loan (or insurance cost if it could get it, very unlikely).

    net result; lots of money lost, someone lived virtually rent free at taxpayers full expense for 2 years.

    The govt see lots of votes in mortgage payers though, whatever the cost.

  • Comment number 16.

    I think it should be called Unemployment Mortgage (+ Bills) Protection / Insurance sold as a product.

  • Comment number 17.

    Still waiting to hear whether this is the end of mortgage interest paid for by the government after 13 weeks for an indefinite period.

    Important for those presently in this position especially the sick on long term benefits who may not be able to return to work within the two year period and have some sort of security at the present time.

    This is not as straightforward as it seems and could lead to even more repossessions if it hasn't been thought through properly.

    But when was anything this government introduced properly thought through.

    Just another political measure which will backfire on them down the line.

  • Comment number 18.

    Wow, the Government have played a blinder and got themselves the ultimate win-win situation:

    By buying the banks he's been able to force them into deferring mortgage interest payments for up to two years. In one move he’s made it look like he actually cares about the public and probably win some votes, whilst effectively protecting house prices to support his property price driven, debt based economy.

    By the way it's hard lines to all the tax paying FTBs. Best you save hard and set your sights on a shared ownership two bedroom apartment.

  • Comment number 19.

    "..the £30,000 would only end up being a genuine cash cost for us as taxpayers in the event that the income of the Slightly-Stretcheds were never to recover or the value of their property were never to rise above the value of the mortgage."

    I'm one of those who thinks house prices are going to fall much further, to say 3.5 times aversge earnings, and then stay at that level indefinitely. So I would say that the second of these conditions is extremely likely in many cases.

    My big concern here is for those who are already in or close to negative equity. Allowing them to stay in their homes as house prices fall by another 20% or 30% will just leave them in even greater negative equity, both from the value of the property falling and the size of the mortgage increasing by 10% or so as it is "rolled up". It would probably be in the best interests of many just to declare themselves bankrupt and start again.

    On the other hand, I suppose if they wait the two years and then declare themselve bankrupt they won't really have lost out - they'll just have had two years free rent at the taxpayers expense. Is that really the Government's intention though?

  • Comment number 20.

    ''The plan is designed to give those who lose their jobs or take a big cut in their income an extended breathing space before their home is at risk.''

    ''the cost to the taxpayer of the scheme likely to be about £100m''

    ''The scheme will cover mortgages worth up to £400,000''

    Why £400,000, that's nearly 2.5 times the average house price?

    £100 million is £4.16 milliom per month over 2 years.

    So thats 13866 homes at £300 per month that the govermnet could help out over 24 months.

    And if these dual or single income homes can't gain a salary equal to the one they lost in order to cover the payments by the end of this measure then the house will be taken back by the bank. More long term solutions need to be found for people facing losing the home they have a mortgage on.

  • Comment number 21.

    These various 'deals' all sound very nice. Well they would do wouldn't they? They're being presented to us by politicians.

    Of course, these arrangements are dependent upon reliable and trustworthy banks and bankers.

    Do YOU trust the banking industry to help you out when things get tight, or do you expect them to find umpteen reasons to opt out of the scheme when they want to?

    Interestingly, I've had a situation recently when a bank agreed with the FOS to pay me some money, but so far have not delivered on that agreement. I wonder how many other FOS settlements are being defaulted upon? Perhaps someone would like to do a FOI request on that one.

    But, for Jo Public, if the FOS can't bring banks to heel, what's the point of even talking about these arrangements and deals with banks and bankers?

    Do YOU believe they'll materialise into anything other than a string of sound-bites and photo-opportunities for politicians and financiers?

    Or perhaps you wonder, like me, if what we'll actually get will be a poorly implemented, feebly monitored, weakly regulated, scheme that will deliver PR and spin but not deliver consumer protection when consumers need it most.

    Or am I just getting too cynical?

  • Comment number 22.

    I am confused about it all but am sure it is a good thing, after all, those in charge have clever advisors from oxbridge and I am just a person surfing the web.

  • Comment number 23.

    The cost is neither here nor there now, we have stopped counting a while back.

    Pity about the guy who borrowed carefully and even took out insurance on the risk of redundancy though. I guess he'll need his house soon to sell so he can have some health care when he's old.

    I feel very sorry for the people shafted because of the housing bubble but every time the careful are overlooked we simply endorse reckless behaviour and withold benefit from those behaving as we need. That's the longer term problem.

    The irony is that everyone is expected to thank the fool who supervised the inflation of the bubble for handing out Mr Carefuls money. Such a generous man, that Crash Gordon.

  • Comment number 24.

    I cannot stop paying taxes but I think I will cash in my Premium Bonds to sop the Government using the money to fund such schemes.

    As a saver, and someone who has always been careful, all I see s the fool hardy risk takers being rewarded. This does not encourage people to take responsibility for their actions. In fact it incentivises further risk taking.

  • Comment number 25.

    Post 1 has sumed it up.

    It just stagnates the problem for the future rather than letting economics run its natural course.

    Mr Brown is a joke.

    Mr Preston write about how the saver is losing out on this.

  • Comment number 26.

    You cannot accuse the government of failing in their attempts to assist the victims of repossession. In another of the new bills announced in the Queen’s Speech today, “the government suggests more park benches”.

  • Comment number 27.

    Thank you Gordon!

    I can now slack off a bit at work, wait to get made redundant, then get meself a two year payment holiday on my mortgage.

    That way I can lounge about for two years, then eventually drag myself back into work mode to try and pay back an even bigger outstanding mortgage.

    Fantastic plan! Rather than knuckle down and earn our way out of this mess, Britain can now slouch its way out.

    Pure genius.

  • Comment number 28.

    I don’t agree with this but the Government have to do something as they are ultimately responsible for the whole over pricing of the housing market.

    Please remember that you shouldn't consider the arsonist a hero because he saves you from the fire.

  • Comment number 29.

    This sounds OK so long as the houseowner has only one charge on the property. If the debt is allowed to run up it would appear at first reading that the government would only cough up if there was a shortfall to the first mortgagee. This means that if the debt is allowed to increase the amount left for subsequent chargees could be eradicated. Their only course of action then would be to bankrupt the borrower. In many cases a quick repossession and sale would be better for the borrower than hanging on.

  • Comment number 30.

    How about some help for the savers badly hit by falling interest rates? Why should income be transferred from the prudent to the feckless without also giving help to the prudent?

    What is the reduction in their purchasing power and what will be the hugely negative effect on the economy?

    Or doesn't the Govt care about pensioners and the retired who are faced by rising costs and falling income?

  • Comment number 31.

    I may as well cancel my ASU policy now and pay it straight to HMRC, yet again the prudent are going to bail out those who have not taken measures to protect themselves.

    Note, I do not wish this scenairo on anyone however people with mortgages are adults and need to take responsibility.

  • Comment number 32.

    This is unbelievable.

    It is the final gold leaf edging for the speculators' charter Brown put in place ten years ago.

    It's a helping hand to anyone who bought into a ludicrously overinflated bubble without thinking, and a kick in the teeth to anyone who prudently analysed the financial situation and said (correctly), "This doesn't make sense".

    Effectively, this is the end of money in the UK - if you can borrow without needing to pay back, getting the taxpayer to pay the costs for you, and if you need never assess risk, then there is no point having currency.

    This is communism.

  • Comment number 33.

    The prudent bailing out the reckless. Time to buy gold or take any savings out of the sterling and put it in the dollar. I'm not subsidising this sham by having my capital eroded.

  • Comment number 34.

    "Quite possibly because by then the property will be worth half the mortgage on it and who on earth would want that millstone round their neck."

    No, because GB intends to devalue sterling and inflate his way out of trouble. In real terms the property will have plummetted, but in nominal terms the idiots who overextended themselves will have had their debts slashed. So who pays for this? Any holders or earners of sterling: savers, bond holders, regular working people, pensioners. The people who will be crucified are those who stayed out of the housing market for the last few years to save up a deposit.

    Gordon Brown has destroyed social justice in the UK, and destroyed sterling.

  • Comment number 35.

    You have to wonder how many of the "slightly-stretched" more than slightly stretched their income on the mortgage application. In the USA they or their mortgage brokers would be done for fraud; here they get a hand-out?

  • Comment number 36.

    Seems like another way of 'deferring disaster' - as Mr Peston commented yesterday at some point there is going to be a glut of repossessions as finances break down, house prices fall like a stone but bottom out and begin a very slow rise. This just defers the inevitable abd house prices will fall as horrendous amounts of debt are deferred.

    Gordon B has a problem - his economy is built on mega house price inflation and easy credit, there's only so much propping up can actually be done here before the dam breaks.

    What this does tell us is just how bad the government beleives the comming recession will be. The spiralling sums of taxpayer money being pumped into trying to get us spending again is beyond comprehension. They would not be doing it if a major recession were not on the cards

  • Comment number 37.

    Just posted (#77) on your previous piece mentioning this new scheme so we're now on the same page Bob!

    Would it no be far simpler to fix the following stupid DWP interest rate policy?

    The DWP currently ignores the fact that c.51 per cent of the 11.7m UK mortgage holders (source CML) are on fixed rate deals.

    Jobseekers with a fixed rate who have managed to survive to qualify for Mortgage Interest help (now 37 weeks/ GBP 100k loans, April '09 13 weeks/ GBP 200k ... why delay?) have been hit hard.

    Since Oct, the interest paid by the DWP has been slashed by 44 per cent, matching the fall in base rates.

    The combination of the DWP ignoring fixed rate deals and declining BOE interest rates means that arrears will mount and eventually repossession will threaten many Jobseekers.

    Please ask Crash Gordon why the DWP does not recognise the fixed rate mortgages of Jobseekers and pay benefit accordingly instead of slashing it by 44 per cent!
    Can this really be classed as helping families through the recession?

  • Comment number 38.

    This proposal will have far more impact on the economy than the VAT cut!

    Now there is no reason for anyone to lose their homes which means cut price property will be a thing of the past within 6 months. This will bring a floor in prices in the property market which in a downturn are driven by repo sale prices. I was an estate agent in the early 90's and saw how repo's create a false bottom for the market first hand.

    Crash Gordon has at last done something good!!!!

    Now the next stage is more mortgage lending, lets hope he takes up Crosby's recommendations, then lower interest rates...........hopefully leading to a stable market, more house sales, removals work, legal work, furniture and carpet sales...and on and on....i.e. a recovery!

    Well done Gordon.....but you still deserved to be booted out for a decade a sheer incompetence which has brought many households dependent on their income from the private sector to their knees.

    Crash Gordon you have been an arrogant fool who can only come up with one good idea out of 100!

  • Comment number 39.

    So Robert when are you going to be arretsed for receiving all these leaks?

    Oh, I'm glad to hear they are Government leaks so you will be a recipeient of frequent leaks.

    And of course you have been groomed to receive them but ..

    Seriously :
    Have the banks agreed this scheme?

    If not, it's all cow excrement.

  • Comment number 40.

    When is this government going to realise the taxpayer has no money to cover payments on a shoe box let alone a house or flat.

    Are they going to pay for the negative equity loss as well?

    This 'generous ' act is typical of the governments complete inability to manage anything where accounts and accountability are concerned.

    The Childrens minister says that we should not reward failure or poor performance but its o k to leave overpaid useless bankers secure as well as reckless citizens.

    Those who try to live within their means and do without if necessary might as well slit their throats now because this government intends to bleed them dry if they don't.

    This is the caring concerned face of Labour.........yeah right on brother!!

  • Comment number 41.

    "every time the careful are overlooked we simply endorse reckless behaviour and withold benefit from those behaving as we need. That's the longer term problem."



  • Comment number 42.

    In a falling market, better to cut your losses and sell than wait two years while the debt rises and the auction value goes down. The banks also will be looking at their risk increasing, and a guarantee from a dying government isn't worth the paper it comes on.Like all Brown's schemes, somewhere in the small print will be conditions that can't be met anyway.

  • Comment number 43.

    Good in principle but to what extent has it been thought out?

    Just heard on the news that much of the scheme is news to the banks, despite 8 supposedly having agreed to it.

    Key questions have not been addressed which appears to alarm the banks, such as how much they will be charged.

    This government with the incompetent BoE have destroyed several banks already, and much asset wealth and confidence in the UK (including our pensions and savings), and now appears to be dictating to the banks (which our pension funds still largely own) without consultation, potentially destroying further value and investor confidence.

    Let's hope the government gets it right this time with this scheme, and actually creates a win-win situation rather than the lose-lose farces we've had so many of.

    They do seem to be acting more and more Stalinesque whether in the arrest of opposition MPs or in the running of the economy.

  • Comment number 44.

    Could I deliberately default on my mortgage now and save/invest the money for repayment later, then accept the difference, be it plus or minus in two years? (rates are low now and the stock market is volatile). Is this a new investment mechanism?

    My real point is that free market economics are not the cause of the current financial situation, the cause was always an inherently socialist government ready and willing (keen) to step in. The reassurance that gave to the greedy 'risk' takers is where the problem began. Real free market economics would have killed off the first bank to go under and made the rest shape up pretty quick, if they ever would have allowed themselves to get in this shape in the first place. As it is we have massive distortions and false parameters imposed by terrified politicians who are trying to save their own skins, not ours.

    Stop now!!

    History is repeating itself but this time we have no Thatcher to save us. We have some pain to go through thanks to Labour (New?) but don't worry we can do it. Plenty of us can still remember the last time, let's just get on with it.

    No more interventions.

  • Comment number 45.

    Finally some good news that will help stabilise the current market fall of 10%.

    This is all about "smoothing out the curve", preventing Banks panicking and dumping cut price property on the market, thereby causing further destabilisation.

    From a social point of view, it will also assist some (but not all) of those unfortunate families who are currently going through the horrendous experience of potential repossession, in many cases through no fault of their own. These families have enough to deal with right now, with redundancy and drastically curtailed income and would welcome the chance of a breathing space to regroup and find another job. They should not have to be evicted from their homes in order to satisfy the short term gratification of the Banks, whose only interest is in re-building their balance sheets and repairing the crisis that they causind in the first instance.

    In terms of cost to the taxpaying majority, this is a drop in the ocean and in the long term will be considerably cheaper than the alternative do-nothing approach which will result in further job losses (and therefore tax receipts) and further costs in unemployment benefit, housing benefit and all the rest of the palaver that goes with the re-possession process.

    It is no suprise the Banks have jumped on board with this - it will cost them less and takes out a large degree of the market risk element. Who knows, it may even cause them to start lending to each other again!

    In short, we should all welcome this move and congratulate Mr P for finally coming up with a story incorporating some humanity and good sense.

  • Comment number 46.

    Here we go again! The ordinary prudent and hard working people that save and not borrow as much as the banks and any credit agency wishes to lend to them will have to step in again.
    I have just about had enough of this, any Labour canvassers turning up on my doorstep will get 'short shrift'.
    This government is lost in the woods, this latest attempt to 'help' people is only postponing the inevitable.
    Let the markets find their own level!!

  • Comment number 47.

    We have our own "sub-prime" disaster looming in this country...its called buy-to-let.
    The losses here could be staggering, including large numbers of bankruptcies.
    Brittanicus Brokus?
    All us bloggers must scream the internet down if we see this sort of disaster coming again.
    PS whilst I'm no fan of Gordon Brown, I think stress is showing and he needs to take a break for a while.

  • Comment number 48.

    And who the heck lent 400 000 quid to an estate agent!

  • Comment number 49.

    For many years I have been a lone voice asking 'Did Gordon Brown attend the Enron School of Economics or did Enron attend the Gordon Brown School'? The only reason that Brown needs to maintain the current absurd level of value in the nations housing stock is that it is the only thing that underwrites the value of the pound. Remember that other Labour leader that spoke to us of 'the value of the pond in your pocket', during his devaluation speech?
    Will we ever get a true figure of repossessions, because we will never know how many sold their houses to Companies which promised they could live in them for ever, then promptly defaulted on their loan repayments, so people were made homeless, but it was not counted as a repro??
    Do you agree with the Government saddling you with more debt, without asking you, the taxpayer if you are prepared to fund it?? We know that you cannot force a Government to stand by it's manifesto ( so on what basis are you supposed to select who to vote for? ), but all this rubbish was never even hinted at at any time during elections....let's have one but first let Parliament pass a law that says a Party must stand by it's manifesto.

  • Comment number 50.

    Can someone tell me how this helps the careful person who is living on the income from their hard earned savings accumulated over many years who have seen their monthly income reduced by more than 50% over the passed month.

    It is even worst if you are renting and can no longer afford to pay the monthly rent. How does it help ? This is very stressful as well.

    The UK has a lot more savers than borrowers so their spending power has significant reduced.

  • Comment number 51.

    The Government knows that if peoples homes were repossessed, it would cost the Government more, as the State would have to find alternative accomodation and pick up the cost for these homeless families through the benefit system.

    This is a cheaper alternative. A clever move, but also comes with risk.

    The gamble is that after 2 years if these people can find similar jobs to support the mortgages they were on, there would be a big balloon of repossesions taking place.

    So in effect it gives Gordon Brown 2 years breathing space to get the economy on the move. Otherwise we be heading for the Big Bang of Repossessions in the UK economy.

  • Comment number 52.

    "From a social point of view, it will also assist some (but not all) of those unfortunate families who are currently going through the horrendous experience of potential repossession, in many cases through no fault of their own."

    In most cases, it will be people who bought in the last few years, at 6x salary or above. These are not people who are in trouble "through no fault of their own". They're in trouble because they mis-assessed risk. If you don't allow the market to punish risk-taking as well as reward it, the system breaks down, and the economy become uncompetitive. The UK's future will be catastrophic with these kinds of policies. Most of those here being grateful that "a floor will be put under house price falls" are purely self-interested: either they bought at too high a price, or were speculators looking for a quick buck, or both.

    The only sustainable way out of this mess is to LET PRICES FIND THE LEVEL DICTATED BY THE MARKET. If you interfere, you are sowing the seeds of disaster.

    I would advise any young and talented person in Britain to emigrate. The place is headed for economic disaster.

  • Comment number 53.

    There seem to be 2 main problems with this

    i) it is grossly unfair to Mr and Mrs Renter who realised that the risk of buying a house was too great and rented instead. Mr and Mrs Renter will be out on the street if they can't afford to pay the rent (and let's face it, Mr & Mrs Slightly Stretched are effectively renting the house from the bank and so should not be treated in preference to others)

    Or is it only homeowners who are helped because GB is actually trying to stop the bursting of the housing bubble that he caused.

    ii) it is grossly unfair to Mr and Mrs 'Insured against this risk'. Some people who realised that they were exposed to the risk of redundancies insured against it.

    Once again, penalise the prudent.

  • Comment number 54.

    If government borrow and spend now, the pain of the recession can be reduced.

    No-one disputes that.

    The question is; how much will it cost after the storm has passed?

    Well the answer is, to do nothing now, as the Conservatives propose, may well cost a LOT more. You can't just let people go to the wall. That was the approach in the 1980's. And it costs a LOT to keep 4,000,000 people on the dole...

  • Comment number 55.

    I guess any prudent borrowers that took payment protection insurance can consider cancelling it now, and saving the premium.

    One wonders how far Gordon Brown will go in offering the taxpayers money to ensure any nasties happen after an election.

  • Comment number 56.

    Forgive me, But some of the so called in the know posters on here need their head examined!

    This scheme is simply putting folk into more debt, you know the same folk that bailed the banks out!!!

    Outrageous Idea, I'd rather hand the keys back or rent the house out!!!

    Stealth TAX brown to the rescue, cannot believe this has been swallowed by 'intelligent' people.

    also many on here are utterly unaware of the law that it replaces, you know the law that the so called nasty tories implemented:

    If you are made redundant, 39 weeks later the state pays your interest (not capital) indefinately. Now most folk have mortgage protection insurance so thats a more sensible idea by MILES!

    And Yes, I'm fully aware of the new scheme that pays out after 13 weeks on interest only but now for only 2 years.

    Who on here thinks the jobs situation will improve in two years? I remember when job centres were called Joke centres btw.

  • Comment number 57.

    I know of people with well over £200k equity in their house (they bought in the 1970's) who are on benefits.

    Not only is the taxpayer paying the interest on the mortgage (low in their case) but they also had the house redecorated, a new downstairs toilet put in, new roof, new double glazing - all paid for by the taxpayer.

    Since they have so much equity, and their children will inherit the improved property that the tax-payer has paid so much for shouldn't a charge be taken over their equity not only for the mortgage interest but all the improvements and their other benefits as well.

    They have the equity to cover it all - why should the taxpayer pay for everything?

  • Comment number 58.

    The politicians, and indeed the general public, are all focusing on issues such as unemployment, repossessions, bank lending, etc. No-one appears to be addressing the real issue caused by this Government's incompetence, namely the value of the Pound. It has already fallen by some 20-25% and as the Government borrows more and more it will fall further. A fall of 25% in the value of the Pound will inevitably lead to an increase of some 30% in the cost of imported goods, for example cars, electronic and electrical goods, clothing, fuel, and even much of the food we eat. The Government is talking about deflation but the reality is that we are facing inflation on an extreme scale in the very near future. The economic crises created by past Labour Governments will be as nothing compared to what lies ahead. Every one of the Governments proposals to cope with the current situation will result in more borrowing which in turn will lead to further falls in the value of the Pound. Britain is heading for disaster!

  • Comment number 59.

    Its a blatant attempt by Gordon Stalin Brown to move the goalposts when the hoards hit the dole queue's next year, wake up !!!

  • Comment number 60.

    This is appalling.

    Brown is rewarding those that played a major role in inflating the property asset bubble.

  • Comment number 61.

    This type of product was tried in the US, it failed, the results can be modelled with accuracy. This scheme just modifies existing mortgages into a sub-prime variant and postpones defaults for a time of the government's choosing, which at two years means after the next general election. The government will be throwing away 40p of every pound they throw at this and leaving the unsightly evictions and a new bank reserve capital crisis to the next one.

  • Comment number 62.

    44, EXACTLY what I was thinking!

  • Comment number 63.

    I'm scared of all these knee jerk economic policies. When I retire (if I'll ever be able to afford to) ol' Bubble Brown and Debtboy Darling will be long dead having sat out their aged years on their nice fat public sector pensions...

    ...while I and the rest of the population born post 1970 will still be paying off the mortgages of those who's primary financial reasoning behind taking out that overstretching mortgage was "everyone's doing it, we can't lose"

    And they were right.

    Good one Gordon, ease the pain of those who might keep you in office for 4 more years - and let some one else pay for it for the next 40.

  • Comment number 64.

    #20 The Midland 20 wrote: "If government borrow and spend now, the pain of the recession can be reduced.

    No-one disputes that."

    I dispute it. Quite a lot of people agree with me.

  • Comment number 65.

    #57 you make an excellent point, but let's not get excited..... they'll just have a baybee and make themselves untouchable again.

  • Comment number 66.

    Although this is potentially a smart move by the government, isn't it in effect keeping house prices up? I thought one of the main problems we faced was that house prices were too high in the first place.

    I just think that when the State begins to subsidise 'private property' it ceases to be 'private' it becomes 'social property'. If private property is the main principle of Capitalism, social property is the main principle of . . .

  • Comment number 67.

    The conflict between supporting those that are vulnerable and using the tax revenues of those who are secure thru luck of caution is clear. However a 25 year mortgage is in principle an agreement for 25 years and a deviation from a schedule of payments, provided it is containable, should be accommodated. It is reasonable. It also probably helps stablise to some extent at least, a market in freefall. It is a great shame that Browns measures are so dwarfed by his previous mistakes because he has done a great deal more to mitigate the situation than the Conservatives in the early 90s who did diddly squat. However, the question is whether we are facing a very dismal future and the government does not wish to panic the public or whether the exceptional measures, because they are exceptional, are effective. The situation until now was that however reasonable a repayment proposal was, it could be legally rejected by the bank, whatever the court felt. The reality is that a huge of mortgage holders are probably in default however small or delayed in process and therefore in technical breach of contract. It is about time this area was strengthened. The banks have made a huge mistake and are having their position eroded, thankfully. This is as near as we are going to get to negative equity trading. Personally I have no sympathy with those who oppose these sort of measures and preach hell and damnation on others from safer ground.

  • Comment number 68.

    Tim Warwick (post 44)

    Well said, sir.

  • Comment number 69.

    Even this scheme could be avoided with a simple alteration to mortgage payments.

    Instead of spreading the mortgage over 25 years the monthly payments should be spread over 23 years within a 25 year term giving the mortgage holder a 2 year payment holiday at a time to suit...i.e. jobless.


  • Comment number 70.

    # 52

    Many people who find themselves currently unemployed as a result of the existing economic situation do so through no fault of their own. They certainly did not plan it this way and would undoubtedly still be paying their mortgage if they still had jobs.

    Your assumption that they have a mortgage of 6 times their salary (or more) is an unfounded generalisation, no doubt subliminally influenced by the day to day media reporting of the last twelve months.

    In fact average house prices are of the order £160k, or four times an average joint salary household income of 40k....historically this is not a large multiple.

  • Comment number 71.

    Is there any chance of the Goverment comming up with a scheme that dosn't involve me footing the bill as a tax payer? How many banking sector people from the city, who have lost their jobs, will be eligible for this I wonder. Yes, genuine people, with familys, who were in low paid jobs and had modest loans should be helped. However this is a blanck cheque to bail out any greedy person who speculated on house prices rising forever.

  • Comment number 72.

    "In fact average house prices are of the order ?160k, or four times an average joint salary household income of 40k....historically this is not a large multiple."

    Yes, but this is AFTER the price falls of the last year, and the people most vulnerable will be those who bought near the top.

    Historically, 4x JOINT salary is a HUGE multiple. 2.5x joint is the historical norm. Check your facts.

  • Comment number 73.

    I have been saving up my money so I can afford to buy a house at some point. I did decided not to get a huge mortgage just to 'get on the ladder' in the next few years. So I welcome falling house prices from the insane levels they reached in recent years.

    But now Gordon Brown seems to want to keep house prices artificially high. On top of that to add insult to injury he wants me, someone who did not take on risky debt, to pay for the lifestyles of those who overextended themselves.

    Well I am not taking it lying down. I am young at 26 and will potentially be paying taxes for many years to come. But I am utterly sick of the way this government is punishing savers, tax-payers and those who refused to participate in the debt binge. When working out how much his "package" will cost I hope Gordon Brown took into consideration the fact that I will be looking to emigrate from away from this country and its punitive regime against prudent savers as soon as I have opportunity. I don't think I'll be the only one. I wonder who Brown will get to fund his give-aways then when savers like myself decide not to be taken for a ride in this country any longer.

  • Comment number 74.

    btw the handle "houseflogger" does rather unveil you as having a vested interest in talking up the property market...

  • Comment number 75.

    Aah! The bleeding heart of of New Labour; a love story between those who voted for them and a treasury full of fools gold.

  • Comment number 76.


    Just wanted to say, 'Excellent job, please keep it up.'

    I really enjoy your blogs: you explain everything clearly, add context, have the courage to make one or two comments yourself, etc etc.

    If only everyone else could be as honest and insightful . . .


  • Comment number 77.

    "I hope Gordon Brown took into consideration the fact that I will be looking to emigrate from away from this country and its punitive regime against prudent savers as soon as I have opportunity."

    I heartily encourage you to do so. The UK has become a joke, where work and reward are virtually uncorrelated.

  • Comment number 78.

    # 67

    Well said........ time for some humanity and humility on this blog.

  • Comment number 79.

    great - I've been offered a nice redundancy package. Going to take that, travel round the world a couple of years, whilst the tax payer guarantees my mortgage. Even better, I'll rent out my flat on the quiet and earn a nice little income while not having to pay a penny on my mortgage.

    Meanwhile pensioners and people who have carefully saved all their lives suffer from interest rates that could fall to zero % - and will have to pay higher taxes to pay for ever increasing public debt.

    Have we ever had a more incompetent PM before? He won't be happy until he's got the whole country out of work and onto state benefits.

  • Comment number 80.

    what person in their right mind would take on a £400.000 mortgage?

    MORAL HAZARD!!!!!!!

  • Comment number 81.

    # 74

    .....never judge a book by it's cover!!

  • Comment number 82.

    At last some common sense in an ocean of smug self righteous people.
    Mrs Thatcher was absolutley correct that a home owning society was good for society.
    Gordon Brown appreciates this fact unlike the present Tory party who have no answers to our current world wide problems.

  • Comment number 83.

    Well it is certainly ok to try and help families to keep the roof over their heads, even if they are to blame for their own misery. However, this needs to be done responsibly and can only apply to cases where there is a realistic chance that repayments can resume relatively quickly. Because, apart from helping to prevent as many personal tragedies as possible, the governments most important thing to do is to finally stop gambling away the future of all of us. I am very concerned that this isn't what the government has in mind.

  • Comment number 84.


    It's not about 'keeping house prices artificially high'. It's about preventing the kind of carnage which has taken place in the US housing market over the last 3 years. Prices here will still fall, but hopefully at a more gentle pace.

    It's not in anyone's interest, not even yours, for the country's GDP to shrink by more than a couple of percent a year. There is a danger as we speak that 2009 could see a lot more than that go from ours, Europe's and Japan's.

    Try to think about the bigger picture. Keep on saving, and you'll get to buy a property at a decent price- they'll be fair value in about 6-9 months from now, even with Brown's plan. Achieving your goal at the cost of the misery of millions would be rather miserable, wouldn't it?

  • Comment number 85.

    So If I read this latest GB play correctly what I should now do is re-mortgage the house (loads of equity in it) spend the money on the house, new car, holiday and put the rest into yen. Then get myself made redundent and I have a two year interest holiday on the whole lot!

    In fact I could put the whole lot into a currency that a) gives interest and b) will apreciate against the pound over the next couple of years, which is probably about every currency.

  • Comment number 86.

    There is no point in being prudent. Brown is bent on destroying anyone who is sensible rational disciplined and fair. Under Brown you are a winner when you are a loser! Borrow to hilt, bid up a property and then if your stupidity becomes apparent say the magic words "I am a loser" and Brown will give you suitcase of money to give you "breathing space".

  • Comment number 87.

    so I borrowed stacks of money by claiming I earn more than I ever earned; bought an over valued house with a 125% mortgage; the value of my home plummets by say 40% maybe more? I continue my loan for that new porche etc ... don't pay the mortgage; continue my slightly curtailed lifestyle; pay my loose cash into my/wifes pension scheme to protect my assets & at the end of this my house remains in negative equity, I enjoy an extra 2 years of living effectively rent free; & the thrifty carefull bloke down the road in the small flat bails me out... have I got that right?

  • Comment number 88.

    Many here seem to think that this will keep house prices artificially high.
    It will not.
    Banks are aware of the chronic overpricing, and their lending policies are showing this.
    You'll need a hefty deposit from now on, and governments and banks have no choice but to allow property to find sensible prices.
    Buy-to-let casualties will also keep prices falling.
    In my area, houses that were at 120k a year ago, are now up for auction at 60k.
    The trick of these sort of policies is in not allowing these losses to be realised.
    And all us careful folks?.....hard luck.

  • Comment number 89.

    Not read the small print on this one but I would like to assume this plan of Gordons is not applicable to Buy To Let mortgages as they were bought as investments rather than as someones primary residence/home.
    There are other areas people will have invested in that have gone down in value, but you wouldn't get assistance for those.

  • Comment number 90.

    You all realise that there are possibilities of modifying mortgages besides this specific model which is KNOWN to be broken?

  • Comment number 91.

    Great news for highly leveraged, amateur buy to let landlords on shoestring budgets struggling to pay their homebuyers mortgages. This is the biggest crime of all; that the government are going to use taxpayers money ie your money to subsidise these "rigsbies" who will delight in being able to take two more years of profit without having to dispose of the keys just yet.
    The real victims of 50% of repossessions are the vulnerable tenants who more often than not know nothing of their landlord's pending insolvency.
    What has Gordon Brown to say about this; the fact that 50% of all repossessions are buy to lets. Does he think that he can fool you tooor hasn't it yet occurred to you. Are you all stupid; unregulated buying to let caused the housing bubble and now the government want to bail them out too. Get a life.

  • Comment number 92.

    Let's say Mr. and Mrs. More-Sensible could have moved to a nice new home but it would mean having a £400,000 mortgage.

    Both have jobs. Ronald More-Sensible is a designer in the electronic industry and Mary works in education.

    Toward the end of this year, he's after many staff cuts it is likely that he will be made redundant but she should be ok having survived 2 years of restructuring.

    Having decided upon prudence 5 years ago they paid their mortgage off 7 years early rather that take a big risk in what looked like at the time another housing bubble was building.

    Whilst they are both ok with 1 salary but the loss of 1 job will certainly affect their retirement, which is not far off.

    They now, have to, at the minimum, provide guarantees via higher taxes for Mr. & Mrs. Slightly-Stretched and possibly pay for their ill judged extravagance.

    Clearly the message from this, and probably other governments, is show no restraint in financial matters as someone else will pick up the bill.

  • Comment number 93.

    This really annoys me. I've been saving for a long time to get a deposit on a house. I'm 32 and live with my parents still! This si the final nail in my coffin.

    I've always been very careful with money, never had any debts, have a great credit history, never claimed a penny in benefits.

    2 Weeks ago i was made redundant, and am now spending all my savings (for my house deposit) just to live.

    I've never broke the law, but now i realise being 'decent' no longer matters. That's it from now i'm goinf to:

    Steal, lie, cheat borrow well beyond my means, and basically become the scum of society. I've woken up. They are lots of others like me.

  • Comment number 94.

    #87: Have you ever considered a career in the civil service?

  • Comment number 95.


    In a vanishingly small number of cases yes you have got it right - live with it.

  • Comment number 96.

    What about those of us that remain in employment and are now over-stretched and in negative equity?

    I'm thinking about those of us who were encouraged by previously over generous banks to borrow to the hilt! Oh and don't forget they also offered the easy to get credit card as well to get you even more in debt.

    Yes people like us must take some responsibility as well as the over generous banks for the state we now find ourselves in.

    But I can't help thinking that HMG is more than prepared to throw over extended borrowers like us to the wolves.

    We were sold a lie Mr Brown!

    We were sold the lie of boom with no future bust!

  • Comment number 97.

    84: "Prices here will still fall, but hopefully at a more gentle pace."

    Why do you hope for a gentle pace? There are many people now who need to move but can't sell. The only reason is that the prices are still far too high for mortgages to be funded, now that this incredible debt bubble scheme finally collapsed. Prices need to come down fast to a level where transactions can happen and people can move where they need to.

    And 73 is very right about his point that it is immoral to bail out the insane debt junkies after they ruined the country and punish the decent instead. But this is exactly what happens at the moment. Again at the expense of the future! So this country will likely limp from crisis to crisis over the next few decades instead of making a U-turn once and for all.

  • Comment number 98.

    I for one feel that Brown is only drawing out the recession, this could drag on for years, all at the tax payers expense.

  • Comment number 99.

    #92, it is the end of moral hazard as we know it.

  • Comment number 100.

    57 jiltedjohn

    re - gripes about unemployed people etc...

    Did the people you know pay between 43 and 46 pence in the pound total tax direct and indirect when they where working. If so they are simply recieving a tax rebate. or dont you think they should qualify under what is a highly regulated statute which I am told piles some 3 to 4 feet high (0.0M to 1.2M) if the volumes are stacked up.

    Have you ever totalled the sum you personally have paid in tax, you will find it truely stunning. Just total your income over the years (adjusted for inflation) before any deductions and say it is nearly half. It is heart sinking.

    Do you think somebody needing say 140K of healthcare should be refused it, that they should be healthy come what may. In the same way somebody who has worked and paid into the system should be refused support whenever for whatever reason they fail to get work, which is the ethos embedded in your statement. My response if that is your position is - fine, but you then do not pay tax at 43 to 46 pence in the pound, which like it or not is actually what the public want, because they want the social support and it has to be paid for. It is the difference between a US system or a European system. Or even a so called Tiger economy system where no effective social support is present so the labour cost is dramatically reduced allowing the undermining of the UK economy.

    Incidentally, as a side issue, most of the young longterm unemployed are a result of the failure of our education system, I have met a large number of them, and the curent so called reforms will not address the problem, and that is before the growing shortage of jobs is considered. Most have some sort of problem, not always their fault, and have been shunted to the back of the class and abandoned as the easy way out.

    Incidentally if you want a forecast it is that the problems of enforced unemployment are due to be exposed in the next year or two, in the same way the problems of poor personal injury compensation for the armed forces have been exposed.

    My tip is stay healthy and employed and uninjured and enjoy grumbling. You could do a great deal worse and it is actually better not to have to find out the hard way. : )


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