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Dan White: Mortgage relief measures are nowhere near enough

The IMF, the Washington-based club of rich countries, has come out in support of Government plans to help homeowners who are in trouble with mortgages.

Under plans expected to be announced next week homeowners in difficulty with monthly repayments will be offered supports including an extension to their repayment period, interest-only repayments or a repayment holiday.

The measures are welcome but don't go far enough to address the problem of escalating mortgage arrears.

According to figures published last month by the Financial Regulator, 32,000 homeowners are at least 90 days behind on repayments. That's over 4pc of the country's 791,000 mortgages.

Unfortunately, the figures don't reflect the true extent of the problem. They don't come even close.

Excluded from the figures are homeowners who have reached a temporary agreement with their lender. As, under the code of practice to which they signed up with the Financial Regulator, the banks have agreed not to legally pursue homeowners who come clean about financial problems for 12 months, the real level of mortgage arrears is much, much higher.

How much higher? No-one knows for sure but most analysts say at least 8pc of all mortgages are impaired.

And things are almost certainly going to get worse, a lot worse.

Over 250,000 people have lost their jobs since the economic downturn began. Many more have seen their incomes cut at the same time as their taxes have gone up.

This is storing up huge problems. Most people will have received some sort of a pay-off from their former employer when they were laid off. When other resources such as savings, overdrafts and unused credit card limits are added it can take up to 18 months from the time someone loses their job to when they hit the financial wall.

In other words, there are tens of thousands of homeowners out there who have yet to show up in the arrears statistics.

At the same time, with house prices now down at least 50pc from their peak levels, the extent of negative equity, where someone owes more on their mortgage than "their" home is actually worth, is rising rapidly.

The ESRI now estimates that almost 350,000 homeowners are now stuck in negative equity. That's almost half of all the country's homeowners who have a mortgage.

When examined against this background the measures being proposed by the government come across as being the absolute bare minimum that it could be seen to be doing. In practice, none of the measures being announced next week will make much difference.

With most of those in arrears already on 30 or 35-year mortgages, switching to interest-only payments will make virtually no difference. Likewise, with most homeowners already on very long repayment periods, the scope for further extending mortgage repayment periods is extremely limited, while repayment holidays merely put off the evil day as the amount owed by the unfortunate homeowner continues to mount up.

No, we need something much more radical.

With house prices down by at least 50pc, sooner or later the banks are going to have to grasp the nettle of mortgage write-downs. There are tens, perhaps hundreds, of thousands of homeowners struggling with mortgages taken out at the top of the market. In many cases "their" home is now worth half or less of the mortgage "secured" against it.

Until the government forces the banks to recognise reality and write down these home loans, and the repayments on them, to reflect the collapse in house prices, the problem of mortgage arrears will continue to get worse.


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