The rate at which borrowers receive income support to cover their mortgage payments has already been cut earlier this year by 40% from 6.08% to 3.63% – a change that comes into effect today (Friday 1st October).
But though the CML says it accepts the pressures on government funding and the need to reduce the rate it says this decision means fewer borrowers will receive payments covering their mortgage interest in full, and all households receiving the benefit will come under greater financial pressure.
CML director general, Michael Coogan, said: "A combination of low interest rates and the concerted efforts of borrowers, lenders and the government have brought about a reduction in arrears and possessions, despite the economic slowdown.
“Paying benefit at a lower rate will put extra pressure on household finances and any borrower anticipating payment problems should talk as soon as possible to their lender, who will treat them sympathetically and try to work out a solution with them.
"Lender forbearance has played a crucial role in keeping arrears and possessions in check, and this is reinforced by the certainty for lenders and borrowers of benefit payments, albeit at a reduced rate, within 13 weeks.
“But any move to lengthen the qualifying period - and in particular to return to a 39-week waiting time - will seriously undermine the efforts of lenders and borrowers to work together to try to ensure that going into arrears does not result the home being repossessed. Continuing government support, including the funding of debt advice, is vital in helping keep people in their homes."
Peter Williams, executive chairman of the Intermediary Mortgage Lenders Association, supported the CML’s call.
He said: “The cuts that have been made to ISMI are already draconian and to cut it further risks undermining the sustainability of the housing market now and going forward. We have already noted a number of groups that will be hit by today’s reduction in the rate.
“It exposes anyone on fixed high interest rate deals and has specifically impacted on shared ownership for people with learning disabilities. Cutting it further at the spending review later this month will put even more people at risk of being unable to meet their payments and would be very unwise in the current circumstances.”
Tony Ward, chief executive of Homefunding, also agrees with the CML’s plea to the government.
He added: “The mortgage market and housing market are still going nowhere fast - mortgage volumes are declining and house prices are trending down. The real world economy is trailing this and the spending cuts to be announced later in October will have a delayed impact on the economy and unemployment.
“We still have a very fragile housing market and it’s too early to withdraw this support - to cut ISMI further would be a cut too far.”
Bob Scott, managing director of estate agent Town and Country, said: “I hope the CML is successful in persuading the coalition not to cut ISMI further but I have a feeling that we’ll be seeing more cuts across the board and in the housing sector to come unfortunately.”
