The Mortgage Rescue Scheme

The Mortgage Rescue Scheme is the name for a £285 million fund set up by the government to help some homeowners struggling with their mortgage. This should not be confused with so-called “mortgage rescue” schemes offered by some private companies, which often involve an individual purchasing a mortgage borrower’s home at a discount and then promising to rent it back to them.

The government’s Mortgage Rescue Scheme was designed to help homeowners having trouble paying their mortgage and who would have nowhere else to live if their home was repossessed. The scheme is aimed at the most vulnerable households and there are strict rules about who is eligible to be helped by the scheme. It was anticipated that about 6000 households would be helped by the Mortgage Rescue Scheme over a period of two years. However, the Scheme has received criticism from some quarters because of the small number of households it has helped.

The Mortgage Rescue Scheme was introduced in June 2008 in Wales and January 2009 in England. A similar scheme has been in operation in Scotland since 2003.

How the Mortgage Rescue Scheme Works

The Mortgage Rescue Scheme may take one of two forms depending on an applicant’s circumstances. Both versions of the Scheme are operated by the government in association with Registered Social Landlords.

The two types of assistance available under the Scheme are:

• Shared Equity – The Registered Social Landlord (RSL) will provide a loan which will redeem part of the existing mortgage, thereby reducing the monthly instalments payable by the homeowner. In return for providing this loan the RSL will receive a share of the equity in the property. This version of the scheme is most likely to apply to those who have a regular income but who have been hit by increased living expenses.
• Government Mortgage to Rent – The RSL redeems the mortgage completely and the applicant remains in the property as a tenant paying rent to the RSL. The rent payable is likely to be below the market rate. This option is most likely to apply to those applicants who have no real hope of resuming regular mortgage payments.

Who Can Apply for Help Under the Mortgage Rescue Scheme

The Mortgage Rescue Scheme is specifically aimed at those households in greatest need and strict eligibility criteria apply. The requirements for eligibility under the Scheme include:

• The household must include a person who is defined as having “priority needs”. This is a technical term which comes from housing legislation and includes pregnant women, people with dependent children and people who are vulnerable due to age or a mental disability.
• The total household income must be less than £60,000 per year and no one in the household must own a second home either in the UK or abroad.
• The value of the property must not exceed a particular level.
• It must be necessary for the household to remain in the property.
• Everyone named on the mortgage must agree to take part in the Scheme.
• It should be financially feasible for the household to remain in the property after they have been helped by the Mortgage Rescue Scheme.

How to Apply for the Mortgage Rescue Scheme

Applications for help from the Mortgage Rescue Scheme are made directly to the housing department of the relevant local council. Eligible applicants are then likely to meet with a financial advisor employed by the local council who will assess the applicant’s financial needs and suitability for the Mortgage Rescue Scheme.

If an application is successful the applicant’s lender will be notified and a Money Advisor will be appointed. In discussion with the household the advisor will create a debt management plan and decide whether the household is better suited to the Shared Equity or the Mortgage to Rent part of the Scheme.

If the Scheme is deemed not to be suitable for an applicant they may still be given advice on how to manage their debts.

The Mortgage Rescue Scheme and Negative Equity

Originally only those homeowners with equity in their properties were eligible to apply for the Mortgage rescue Scheme. However, in mid 2009 it was announced that the Scheme would be opened to applicants who satisfy the eligibility criteria but are in negative equity.