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Homeowners mortgage support scheme

This content applies to England & Wales

Homeowners who had suffered a temporary loss of income may be able to reduce their monthly mortgage payments by deferring some of them for up to two years. This scheme is now closed to new applicants.

The homeowners mortgage support (HMS) scheme was closed to new applicants in April 2011. The government’s guarantee arrangements continue for those homeowners who are registered on the scheme.

The government has produced guidance for advisers and lenders.

How did homeowners mortgage support work?

Under HMS eligible homeowners who were having difficulty with their mortgage payments could renegotiate their monthly payments with their lenders. Renegotiated payments must be the maximum that the household can afford and at least 30 per cent of the monthly interest due on the mortgage.

The portion of the monthly payments that is not being paid while on the scheme is added onto the remaining mortgage. If homeowners default on their payments the Government will guarantee 80 per cent of the amount that is deferred, making the arrangement less risky for lenders. Payments can be deferred for a maximum of two years, subject to a formal review after one year. Participating homeowners must inform their lenders and exit the scheme if their financial circumstances improve.

DCLG produced an information pack about the scheme (see under 'Downloads' on the right of the page) for advice agencies acting as the scheme's accredited money advice providers.

Eligible households

The scheme was aimed at homeowners who had experienced a temporary loss of household income, for example due to redundancy.

There were certain criteria that homeowners had to meet to be eligible for assistance under HMS. Homeowners had to:

  • be able to show that their households' income has dropped substantially (but temporarily) and that they cannot meet the current monthly payments on their mortgages
  • have been making regular payments for at least five months. These include reduced payments or non-payments for a certain period provided that the reduction or non-payment period was agreed with their lenders
  • be able to afford at least 30 per cent of the interest due on their mortgages
  • have less than £400,000 outstanding on their mortgages (including any other loans secured against their homes)
  • have an interest-only mortgage or be able to switch to one
  • have purchased their homes with a mortgage before 1 December 2008 (note that a homeowner who has remortgaged her/his home after this date may still be eligible)
  • have discussed all other options with their lenders (see Applying for the scheme below)
  • have received advice from a money advice agency accredited by the scheme.

Excluded households

Homeowners could not participate in the scheme if they:

  • had £16,000 or more in savings
  • were eligible for support for mortgage interest payments or are receiving support under the mortgage rescue scheme or any other government mortgage rescue initiative
  • were not working and are claiming income-based jobseekers allowance, income support or employment and support allowance (in which case they can claim support for mortgage interest instead)
  • owned more than one home (HMS does not provide assistance with repayments on buy-to-let investments).
  • were assessed by lenders to be at a high risk of defaulting, even on the reduced payments.

A homeowner was also excluded from the scheme if her/his household's income was unlikely to return to its previous level, for example when the loss in income is due to a long-term illness. In this instance, the mortgage rescue scheme would be more appropriate.

Implications of joining the scheme

Before signing up to the scheme, it was important that homeowners considered the following points:

  • HMS is not a payment holiday: monthly payments will be reduced, not stopped
  • no capital on the loan will be paid back under HMS: because of the deferred payments the overall mortgage outstanding will increase while on the scheme
  • the households' monthly payments when they leave the scheme are likely to be higher. This is because the interest on the deferred payments is added on to the mortgage
  • the scheme reduces the risk of repossession, but does not eliminate it if payments are not kept up or the household cannot afford to resume the full payments after leaving the scheme
  • the Government's guarantee does not diminish homeowners' existing legal obligations regarding their mortgages.

One-year review

Up to one year from the date the homeowner joined the scheme (the review date is specified in the Lender Decision Letter) there must be a formal review with the lender and an accredited independent money adviser to decide whether staying on the scheme is in the homeowner's best interest. In order to stay on the scheme, the homeowner will need to provide accurate and full information about her/his financial circumstances at the one-year review point. The review will also include consideration of whether the household's drop in income is still temporary.

Change in circumstances

Participating homeowners must inform their lenders of any change in their financial circumstances, positive or negative, as soon as practicable. Lenders will consider whether homeowners remain eligible for the scheme.

If participating households' circumstances improve in a way that they are able to stop deferring payments, then they must do so. Homeowners can rejoin the scheme after having left it, if they fall back into difficulties with their payments (provided they can still meet the scheme's eligibility criteria).

Leaving the scheme

Homeowners can leave the scheme at any time, pending agreement of a new payment schedule with their lenders.

Payments can only be deferred for a maximum of two years under the scheme, subject to a review after one year. Once payments are no longer being deferred, the homeowner leaves the scheme and there is no guarantee of any subsequent payments.

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