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The UK government and mortgage life protection

Homes purchased through a mortgage is down by 9% from 2001 to 2011, while the number of households that rent increases.*

Some reasons why:

  • High house prices
  • Low wage growth
  • Tighter lending requirements

*A Century of Home Ownership and Renting in England and Wales, Office for National Statistics

With the economic downturn and with the decrease in the number of owned households, the UK government has instituted programs to help those who are struggling under the strain of the economy.

This is mainly to help those:

The Mortgage Rescue Scheme

The government has initiated the Mortgage Rescue Scheme, which is administered by the local housing authority. Those families who were in danger of having their homes repossessed has the option of:

Who is eligible for the Mortgage Rescue Scheme?

Those who are eligible must have someone in the household who has a “priority need”. This includes people who:

  • Are pregnant
  • Have children as dependents
  • Have a mental or physical impairment
  • Are elderly

The Mortgage Rescue Scheme is not available to those who:

  • Have a second home
  • Has an annual gross household income of more than £60,000
  • Has a total debt of over 120% of the value of the home
  • Has a home which is valued higher than the market rate for the area

Eligibility in the program depends on one’s personal situation. If you are eligible, you or your family (if you have already passed away) can apply for financial help to keep the home.

Please note that this program is available only in England. There may be different programs or schemes in Northern Ireland, Scotland and Wales. (If you live in these areas, ask from your local council or look up your local council’s website.)

When you or your family is in danger of losing your home, you can be referred to the program by your mortgage lender, the courts or social or advice agencies.

Support for Mortgage Interest

For homeowners who are receiving income related benefits, the Support for Mortgage Interest can help pay for the interest on the mortgage. This is paid out to the lender and will be for interest of mortgages valued up to £200,000 of the mortgage or £100,000 (for those receiving Pension Credit).

The current interest rate used is 3.65%. This benefit only pays out the interest on the mortgage (or any other eligible loan) and is for a limited number of months, usually to 24 months. However, there is no limit to the length of time you get SMI if you are also receiving Pension Credit, income-related Employment and Support Allowance or Income Support.

The NewBuy Scheme

This is a government-funded initiative that was launched on March 2012. The aim of the NewBuy Scheme is to help first-time buyers purchase a newly built home with down payments of as little as 5% of the property’s value.

Who is qualified for the NewBuy Scheme?

  • Buyers are UK citizens
  • Properties are newly built
  • Those who aim towards full ownership of the property and can pay at least 5% of the property price
  • Those who are qualified to take out a mortgage based on credit history and other borrowing criteria
  • Properties bought as the primary residence and not as a buy-to-let basis
  • Properties valued at £500,000 or below

The government will shell out 5.5% of the property’s purchase price while developers will contribute 3.5%. This, hopefully, will encourage lenders to issue more mortgages as the risk of foreclosure is minimized.

As the NewBuy Scheme is aimed towards lenders, it does not provide any protection to home buyers who default on their monthly payments. It just enables the buyers to get hold of the property more easily as they only need a smaller down payment. Buyers will still need to regularly pay the monthly mortgage, regardless of illness, injury or unemployment.

The lender may repossess the property if you default on the payments. Consequently, you will still be responsible for the shortfall between the remaining loan amount and the sale price of the foreclosed property.

How mortgage life insurance can help

The Mortgage Rescue Scheme can be a big help to those who have experienced the loss of a breadwinner who contributes a substantial amount to the household’s finances.  However, it has some disadvantages:

When you have a considerable mortgage, it will be helpful to get mortgage life insurance to ensure that your home is safe from the danger or repossession in the event that you die while the mortgage is still outstanding. The Mortgage life insurance will pay the mortgage balance in full.  This means one less thing for your family to worry about.

Check your current status and the family’s status in case you die. Do they meet the eligibility requirements for the Mortgage Rescue Scheme? If not, it will be useful to look into getting mortgage life insurance to cover your home.

Latest update: 16.06.2013

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