» Read the complete article

Consumers qualifying for the government’s two-year mortgage holiday will run up massive debt, leaving them financially worse off, according to a new report published by a group of mortgage experts.

The report by Exact mortgage specialists raises the question of how customers unable to pay now, will pay off debts on their mortgage as house prices continue to slide. It says as the value of property continues to fall, they will be left with less equity in their home and more debt to pay off.

The Government’s proposed scheme will allow those who are not earning to have their interest repayments guaranteed. But this will not be a write-off – the offset payments will have to be paid off once the borrower begins earning again.

Alan Cleary, managing director of Exact says: “This is PR hype. It’s a political manoeuvre designed to boost polls – it completely fails to take account of the current market situation. House prices are falling – delaying payment of mortgage interest for up to two years runs up more debt against a property, which is simultaneously losing capital value.

“According to standard lending agreements, if a borrower cannot afford to continue repayments, the lender should repossess the property as a last resort – to minimise the financial losses for the borrower. If lenders are forced to delay the inevitable, families hit hardest by the credit crunch will be left without a home – and they’ll be in a far worse financial position than they would be if they sold up now and cut their losses.”

To Keep up with news and comments on the current adverse credit market please visit the Adverse Mortgage Blog.