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What is a mortgage rescue scheme
If you're struggling to pay your mortgage, one option you may want to think about is a mortgage rescue scheme run by a social housing landlord such as a housing association.
Mortgage rescue schemes are different from schemes run by private firms or individuals. Schemes run by private firms or individuals are known as sale and rent back, buy back or sale and lease back schemes.
For more information about sale and rent back schemes run by private firms, see Sale and rent back schemes.
A mortgage rescue scheme uk may be the right option for you, as long as you check the terms and conditions of the scheme very carefully. You need to understand exactly what you are signing up to, and how this will affect your housing and financial situation in the long-term.
On this page, we tell you about:
what to look out for before signing up to a mortgage rescue plan scheme the government-backed morgage rescue scheme in England the government-backed mortgage rescue scheme in Wales schemes run by social housing landlords, such as a local authority or housing association other options you may have for dealing with your mortgage debts.
If you?re having serious difficulties paying your mortgage, for example, if you?ve started getting letters from your mortgage lender threatening court action, you should get help from an experienced debt adviser straight away.
You can get debt advice from a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by e-mail, click on (New window) nearest CAB.
You might also find it helpful to look at What happens if your mortgage lender takes you to court.
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Things to look out for before signing up to a mortgage rescue scheme
If you're thinking about signing up to a mortgage rescue scheme, there are some things you should look out for. These include:
what type of tenancy is being offered? If it's a tenancy which only lasts a certain period of time to start with, can it be renewed after that and when can the landlord take court action to evict you? how is the rent set, including how often will it go up and by how much? what are the responsibilities and obligations of both the landlord and tenant? can shares in the property be bought back if your financial position improves?
You should also bear in mind that if you sell your home but continue to live there and pay rent, you may not be entitled to Housing Benefit.
For more information about Housing Benefit, see Help with your rent ? Housing Benefit.
If you're thinking about signing up to a mortgage rescue scheme, you should get advice from an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on (New window) nearest CAB.
You may also want to think about getting independent financial advice. This will help to make sure you've thought carefully about how signing up to a mortgage rescue scheme will affect your financial and housing situation in the longer term.
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Government-backed mortgage rescue scheme in England
In England, the Government has launched a mortgage rescue scheme to help vulnerable homeowners to stay in their home. The scheme has two separate parts - a Shared Equity scheme and a Mortgage to Rent scheme.
Under the Shared Equity scheme, a housing association will give you a loan which will be used to lower your monthly mortgage repayments. You will need to repay the loan to the housing association but you will still own your home.
Under the Mortgage to Rent scheme, a housing association buys your home and allows you to carry on living there as a tenant. It means you will no longer own your home. You will have to pay rent each week or month to the housing association. Who can apply for the scheme
To be able to get onto one of these schemes, you will need to show you are at risk of being made homeless in the near future because of repossession by your mortgage lender. You will also need to show that you need to stay in the same area where you live, and that:
you, or someone in your household is pregnant or you have dependant children, or you're vulnerable. This could be, for example, because of old age, mental illness or a disability.
You will not be able to apply for either of the schemes if:
the total amount of annual income in your household is more than ?60,000 you have more than one home your home is valued above a certain amount for your area.
As well as meeting these conditions, which apply to both schemes, you will also need to meet some additional conditions, depending on which scheme you apply for. These are described below.
Your local authority may have other, local criteria that you have to meet too. They will be able to give you more information about this. Shared Equity scheme
To be able to get on the Shared Equity scheme, you must:
have a certain amount of equity in your property. Equity is the difference between how much your property is worth and the amount you owe on the mortgage be able to keep up payments to your mortgage once you have been granted an equity loan.
How shared equity works
If you are considered suitable for shared equity:
a housing association will offer you a loan of between twenty-five and seventy-five per cent of your current mortgage. This will be paid to your mortgage lender the loan will reduce your overall monthly mortgage repayments. The loan is secured against your home you will be charged three per cent of the value of the loan for joining the scheme you will be charged an interest fee on the loan of 1.75 per cent for the first year. The fee will increase after the first year at a certain percentage rate you will continue to have to pay for any repairs or maintenance on your property.
The property will remain yours, as long as you are able to keep up the payments on your mortgage and on the loan. If you can't keep up your repayments, your mortgage lender will be able to take action to try and repossess your home. Mortgage to rent scheme How the scheme works
If you're considered suitable for the scheme:
you will no longer own your home. Instead, a social housing landlord buys the property and rents it back to you. This is usually a housing association. You will become a tenant of the housing association you will have to contribute 10 per cent of the value of your home to join the scheme. If you have less than 10 per cent equity in your home or you're in negative equity, you may still be able to join the scheme but you may need to come to a separate arrangement with your lender you will be given an assured shorthold tenancy. The tenancy will allow you to stay in your home for at least three years. At the end of this time, you should be given a new tenancy, as long as you've kept to the conditions of your tenancy agreement your landlord will be responsible for any repairs to the property you will have to pay rent and keep to the other conditions of your tenancy agreement the rent that you will be charged is 80 per cent of the rent your home would be expected to get on the open market, if you let it out.
Mortgage rescue scheme The Government's mortgage rescue scheme has been criticised by the National Audit Office for wasting money. Photograph: Darren Cool / Alamy/Alamy
A government scheme to help struggling mortgage borrowers stay in their homes has been criticised by the National Audit Office for helping less than half the expected households at a cost of nearly ?100,000 each.
The mortgage rescue scheme, introduced in January 2009 by the Department for Communities and Local Government (DCLG), helped 2,600 households in two years, less than half the 6,000 expected. It also exceeded the budget of ?205m by ?35m, meaning the average cost of each rescue was ?93,000 compared to an expected cost of ?34,000.
The scheme offered homeowners who were in imminent danger of repossession the choice of an equity loan to help reduce their monthly mortgage costs, or to have their home bought by a housing association and stay on as the tenant.
The NAO said the DCLG misjudged the levels of demand for the two choices, believing most households would choose an equity loan ? the cheaper option for the taxpayer. In reality, nearly all households chose the more expensive route of selling their house to a housing association. This was possibly because they had no equity left in their homes to borrow against.
Amyas Morse, head of the NAO, said: "The department made assumptions about the level of demand for the mortgage rescue scheme and made the wrong call. Spending more than expected and delivering less means the department has not provided value for money."
Housing minister Grant Shapps said: "One of my first decisions in government was to insist on better value for money from this ?240m scheme. In the last government, ministers believed that all you needed to do was throw money at a problem. The great sadness is that more people could have been helped to stay in their homes had they spent the money more wisely."
But a recent Council of Mortgage Lenders report said that while house repossessions were up by 15% in the first quarter of 2011, the mortgage rescue scheme helped 5,039 households receive help and advice from their local authority in the first three months of 2011.
Campbell Robb, chief executive of Shelter said: "When judging the success of this scheme it's important to remember it encouraged almost 40,000 struggling homeowners to seek help and as a result many kept their home. Many of these people got advice from organisations like Shelter, and our research shows that over half of those who came to us via this scheme managed to keep their home as a result."
Peter Tutton, social policy officer for Citizens Advice agreed: "The scheme was always going to be low volume and expensive, because it was designed for some of the most vulnerable people in the UK ? those with children and disabilities ? becoming homeless. It's hard to criticise DCLG staff for what they did: they really pitched in to get solutions, and the very fact that the scheme existed meant lenders and courts showed more forbearance."