The news that only one household has been saved from repossession by the government’s interventionist tactics may have surprised a few people, but the reality is that the schemes launched in December 2008 were little more than spin.
In my opinion the 2 year deferment of interest scheme was spinning so fast that it had created its own gravity field. There has been little interest from the banks and building societies to actually apply these schemes for one simple reason, they make no commercial sense. The government guarantee theoretically covers the lenders loss if after the deferral period the borrower ends up defaulting anyway. But, do the maths and you will see that the interest payments that could be deferred for some borrowers probably adds between 5 and 10% to the mortgage balance. Compare that to the potential drops in house prices that range from a further 10 to 30% and you can see that the risks to banks and building societies applying the government’s scheme is not a great commercial decision.
That’s why the banks that have bought into the schemes tend to be the ones that are owned or part owned by the taxpayer and that’s why only one household seems to have benefited. The message to the government is pretty simple, the banks and building societies are quite rightly more fearful about losing on negative HPI than they are positive about getting some interest underwritten by the government. As I said in Exact’s White Paper in December these schemes seem to be more about winning votes than saving the economy. I still hope I am wrong.
