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Mortgage rescue scheme

This content applies to England

The mortgage rescue scheme helped eligible homeowners with a shared equity loan or a mortgage to rent option. This scheme is now closed to new applicants.

The scheme closed to new applications on 31 March 2014 (see the heading 'Applying for the scheme' below for more on this).

The mortgage rescue scheme (MRS) was set up to provide a last resort option for vulnerable households at risk of losing their homes through repossession. 

MRS is administered by local housing authorities. It was not mandatory for authorities to offer the scheme but most did.

The Financial Conduct Authority (FCA) Handbook Mortgage Conduct of Business (MCOB) 13: Arrears and possessions states that a lender must make a customer in arrears aware of any relevant government schemes to assist borrowers in payment difficulties. [1]

Eligible households

MRS was available to homeowners who had taken out either first or second mortgages on their home. It was designed to operate as part of a local authority's housing options service. MRS did not replace any duties that a local authority may owe to a homeless applicant under the Part 7 of the Housing Act 1996.

To be eligible a homeowner had to (if they were to become homeless) have a priority need for accommodation as defined in section 189(1)(a)-(c) of the 1996 Act. This means a household with dependent children, or a pregnant woman, or someone who is vulnerable because of old age, illness, disability, or other special reason.

The local authority assessed eligible applicants to see if they qualified for MRS by satisfying itself that the following criteria were also met:

  • the applicant must have explored all alternatives to repossession with their mortgage lender. MRS is only an option when there are no viable alternatives. The lender must be prepared, in principle, to support the application for mortgage rescue. The applicant has an up-to-date financial statement drawn up by a money advice agency, designated by the local authority. This may be a local Citizens Advice, National Debtline, the Consumer Credit Counselling Service or the local authority's own in-house service
  • there are no outstanding charges on the applicant's property that prevent it being sold
  • an up-to-date valuation of the applicant's property indicates mortgage rescue is a viable option. Estate agents and chartered surveyors can provide a valuation. More than one valuation will be required
  • MRS should be both affordable and suitable for the applicant
  • the applicant has been provided with sufficient time, advice and assistance to enable them to make an informed decision about all their housing options.

Excluded households

MRS was not available for homeowners who:

  • have outstanding loans that are more than 20 per cent greater than the value of their home, and/or
  • have an annual gross income above £60,000, and/or
  • have a second home, and/or
  • own a property valued above a regionally set cap. There may be exceptions to the regional cap where the household has a need for an exceptionally large property or where the property is specifically adapted for the needs of a member of the household.

Applying for the scheme

MRS closed to new applications on 31 March 2014. Any new application made by this deadline by way of full referral from local authorities, or the NHAS advice team, should be completed by 30 September 2014. Late applications will only be considered in exceptional circumstances and on a case by case basis.

The local authority referred a household that meets the MRS criteria to a designated private registered provider of social housing (PRPSH) Zone Agent for completion.

NHAS Housing Debt Casework service

The NHAS housing debt casework service is still able to assist local authorities with MRS cases that have been referred to a PRPSH but have become blocked and are not able to complete, for example where a second or third charge holder is refusing to release their charge. For further information or to make a referral, contact the team on 0300 330 0517.

Zone agents

Participating PRPSHs are known as 'Zone Agents' and assessed each eligible household, after assessment by the local authority, against a pre-determined financial model to decide on the best MRS option. Depending on their specific circumstances eligible homeowners may have been offered either a shared equity loan or a mortgage to rent option.

Shared equity loan

To be eligible the applicant had to have between 25 to 40 per cent positive equity in their home. The applicant will be provided with a shared equity loan from a Zone Agent, which will be used either to clear or reduce second charge loans or reduce the amount outstanding on the first mortgage loan. The loan is repayable at a low rate of interest. The available rate is to be reviewed periodically. An individual applicant's rate will be increased by an agreed formula on the anniversary of the loan. Three per cent of the value of the property is levied as a charge. This charge is repayable when the property is sold or otherwise added to the loan. The loan will become a charge on the property.

Government mortgage to rent

To be eligible applicants had to have outstanding loans of between 75 and 120 per cent of the value of their home. An RSL Zone Agent purchased the property at a price of 97 per cent of the market value (90 per cent for applications made on or after 1 March 2011)[2] and rented it back to the former owner at a market rent less 20 per cent. In most cases the applicant was offered an assured shorthold tenancy for a minimum term of three years. The applicant did not have a right to buy back the property at a later date.

It should be noted that there were some private companies which provided 'mortgage rescue schemes', see the page on Sale and rent back schemes for more information.

Housing benefit

If a person sold their home and became a tenant, they may be able to claim housing benefit. In order for a former owner to be eligible for housing benefit on a home s/he, or her/his partner, owned within the last five years, s/he must satisfy the local authority that s/he could not have remained in her/his home without selling it.The Department of Work and Pensions issued HB/CTB Circular A5/2009 to provide guidance for local authorities to help them to identify when a person who enters a sale and lease back arrangement will be eligible for housing benefit.

Wales

The information on this page applies only to England. Go to Shelter Cymru for information relating to Wales.

[1] FSA, MCOB 13.3.4B.

[2] see Annex one to the 2011-15 Affordable Homes Programme Framework, DCLG/HCA, January 2011.

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