Cable challenges Government over limitations of mortgage help plans

3.42.00pm GMT Wed 14th Jan 2009

As far back as 2005 Liberal Democrat Shadow Chancellor Vince Cable has been pressing the Government to put in place adequate safety nets for people who would be faced with repossession when the housing bubble burst.

However it was not until autumn 2008, in the wake of figures showing repossessions shooting up, that the Government acted, launching a flurry of initiatives which they claimed would help people keep their homes. But are they working? Vince Cable has his doubts, and explored them in a Westminster Hall debate he obtained on Tuesday (13th January).

Vince began by looking at the ‘pre-action protocol' - the intervention in court rules by the Ministry of Justice to try to ensure that repossession is always treated as a last resort. He said that concerns were increasingly being expressed about the limitations of the initiative.

"A case that I recently encountered is the kind of case that the protocol should reduce or eliminate. The home of one of my constituents has just been repossessed by a company called Capstone Securities, a subsidiary of Lehman Brothers. My constituent had tried very hard to save his home. He had put an offer to the bank that he would repay 80 per cent. of his arrears on the spot and clear the remainder within two months, but the bank rejected it...My constituent has now lost his home, and because of the delay in selling, has seen all his equity disappear. There are thousands of stories of that kind."

The problem with a second government initiative, changes to the income support for mortgage interest (ISMI) scheme, was that it left out households who, while suffering a dramatic loss of income, did not end up totally jobless. Vince cited the example of a family in which one partner with a salary of £24,000 loses their job. Their partner earns £7,000 a year in a part-time job, but because they are working more than 24 hours a week they are not eligible for any help under the ISMI scheme.

Vince also identified problems with the main mortgage lender-led initiative - the mortgage support scheme. Vince described this as "an imaginatively constructive idea in which the mortgage lender absorbs interest arrears over a couple of months, and the Government, in effect, underwrite the arrears while they are in the process of being corrected". But he warned that the feedback he is getting is that the scheme is being so tightly drawn as to exclude large numbers of people who might otherwise be eligible for it, such as anybody in negative equity. Thus, he said, "those who need help most are effectively excluded". Some of the same problems, of scope and scale, also applied to the Government's mortgage rescue scheme, under which people who fall into serious arrears can become tenants in their own homes, he said.

In summary, said Vince, "we have had a series of initiatives that are valuable in themselves... [but] are very limited." Estimates put the number of households who would be helped by the two main government schemes at just 15,000, out of 75,000 thought to be facing repossession." Without further action, concluded Vince gloomily, "even with these schemes in place, large numbers of people will be repossessed this year."

Read Vince's full speech here