The Liberal Democrats are calling on the Government to introduce an emergency Mortgage Protection Fund to support struggling families at risk of losing their homes, paid for through reversing Conservative tax cuts to the banks. But is this just pre-election waffle with no substance?
A survey by the Office for National Statistics has found 6% of UK adults said their mental health has been impacted by rising mortgages and rents in the past months. This is equivalent to an estimated 3.13 million people across the country.
The Liberal Democrats have warned that the mortgage crisis is causing a “mental health ticking time bomb,” after figures showed that over three million people’s mental health has been negatively affected by not being able to afford their rent or mortgage.
The political party said it showed the “shocking” toll on people’s mental health following the mortgage crash and called on the government to step in to support homeowners on the brink.
The survey also found almost four in ten (37%) people said they’d seen their rent or mortgage go up in the past six months. A typical homeowner seeing their deal come to an end will see their monthly mortgage interest payments increase by £240.
The Liberal Democrats have opined that the Conservative Party has “crashed the UK economy”, citing a number of reasons, including the party’s austerity measures, its decision to leave the European Union, and its handling of the COVID-19 pandemic.
The Conservative Party denies these accusations, arguing that it has taken necessary steps to reduce the deficit and that it has made the best of a difficult situation. The Conservatives also tout the UK’s recent economic growth as evidenced in November.
But the economy is by no means flourishing. The ONS has said that flat output in December is likely leading to a second consecutive quarter of falling output. That according to a Reuters report would place the economy in a “shallow recession”.
“It remains touch-and-go whether the economy tipped into a technical recession in the second half of 2023,” Investec economist Sandra Horsfield said in the Reuters report. She continued, “In either case, a better description of the trend might be stagnation. The recession, if it did occur, looks to have been as mild as they come.”
Collateral damage caused by mortgage rates
Liberal Democrat Leader Ed Davey, said, “The collateral damage of spiralling mortgage rates is hitting families hard and creating a mental health ticking time bomb.”
Davey said every day another family faces the grim prospect of falling off their mortgage deal, only to face eye-watering rises worth hundreds of pounds.
“The blame lies squarely with this Conservative government for crashing the British economy and leaving homeowners to pick up the tab. The very least Conservative ministers can do now is help families at risk of losing their homes,” said Davey.
Some mortgage experts care of the Newspage agency see the Liberal Democrats’ move as purely political. Richard Jennings CeMAP, Founder & Managing Director at Richard Jennings Mortgage Services, says, “The cynic in me sees this as nothing more than headline-making to generate votes whilst at the same time bashing rival leadership parties. With no clear details of how they would administer this, what funding would be available? Who can apply? How long it would be paid for? It’s a clear attempt at staying relevant and nothing more.”
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Is a Mortgage Protection Fund a good idea?
“I’m as dyed in the wool a lefty as they come so you’d think I’m all for this but I’m not, ” said Rhys Schofield, Brand Director at Peak Mortgages and Protection.
He continues, “Yet another party coming up with sticking plaster ideas and not addressing the elephant in the room. We need a proper long-term plan to build enough housing and infrastructure – but then building in a NIMBY’s backyard doesn’t play well at the ballot box.”
Lewis Shaw, Owner and Mortgage Expert at Shaw Financial Services, says a Mortgage Protection Fund is a “terrible idea” and is nothing but a “cynical attempt to garner votes off the back of pain felt by households.”
“We should be very aware of the law of unintended consequences here.,” says Shaw. “Punitive action taken against banks for circumstances they didn’t cause, which were beyond their scope to change, seems unfair. Moreover, this would introduce an enormous moral hazard and could further lead to mortgage lenders tightening their lending policy,” he says.
Shaw says the knock-on effect could be a “disaster for first-time buyers who dream of owning a home, further entrenching inequality and even less social mobility. Realistically, we can’t socialise all the risks that individuals take.”
UK plc is broke. We cannot simply just keep expecting the tax-payer to pick up the bill.Michelle Lawson, Director at Lawson Financial
Darryl Dhoffer, Mortgage Expert at The Mortgage Expert, says if such a fund would be introduced, it should only prioritise support for lower-income families “facing the greatest risk of losing their homes, and by reversing tax cuts for lenders which could be funded this way, without incurring additional government debt.”
He suggests reversing tax cuts is a complex political and economic issue, and may face legal challenges from the lenders. “Understandably,” he says, “which in turn could alter lenders’ criteria on new borrower applications. Heed with caution!”
Lenders may not bite
Akhil Mair, Director at Our Mortgage Broker, says eligibility criteria for accessing a Mortgage Protection Fund would need careful consideration to ensure it reaches those most in need:
Reversing tax cuts to banks is a complex matter that requires a thorough assessment of its long-term implications. I doubt lenders would welcome this initiative given the multitude of issues already on their plate.
Scott Taylor-Barr, Principal Adviser at Barnsdale Financial Management says while in theory the fund concept would be a useful idea and help support those who really need it, the “issue is always with the details.”
Taylor-Barr continues, “How much will it cost to administer and who picks up that bill? The lenders? The Department of Work and Pensions? HMRC? The next issue becomes one of the rules and criteria for the support. How do you ensure that the help goes to those struggling due to health or work issues and not those who overextended themselves and bought houses and cars they really shouldn’t have when money was cheap?
There is a huge difference between those who genuinely cannot afford their mortgage, and those that say they can’t afford their mortgage, but in reality cannot afford their lifestyle and are choosing not to change that lifestyle to prioritise the mortgage.Scott Taylor-Barr, Principal Adviser at Barnsdale Financial Management
Protection products v. government bailouts
When asked whether she thought a government-backed mortgage protection fund would be a step in the right direction, Michelle Lawson, Director at Lawson Financial tells The Freelance Informer, “In short no! There are protection products available that people can take out to cover most eventualities. I think the public needs to be educated more about the products available and to start taking responsibility for their actions and should not expect others to pick up the bill.”
Lawson says, “Home ownership comes with a duty” to ensure you can maintain a mortgage.”
“Some people may not be able to get protection products for health or other reasons in which there could be an argument for such a thing however this, in my opinion, is more about the insurers innovating products in a better way to offer cover to all,” she says, adding”UK plc is broke and we cannot simply just keep expecting the tax-payer to pick up the bill.”
Amit Patel, Adviser at Trinity Finance says while the fund is a good idea on paper, “we can’t expect the Government to bail out people every time there is an economic shock, where would it end?”
Patel tells The Freelance Informer, “Protection policies will solve the majority of the issues, albeit some people may not be eligible due to a health condition or hazardous occupation. If you get sick or injured and can’t work, income protection insurance can: pay you part of your monthly income, pay out if you need to take time off work for an illness or if you’ve been injured and support your recovery and get you back to work sooner. The payout is tax-free. It won’t pay out if you’re: made redundant or dismissed and still getting paid sick pay by your employer.”
Balancing Mortgage Protection: Aid or Burden?
A UK government mortgage protection fund could raise a critical question: lifeline or moral hazard? While offering temporary relief to homeowners squeezed by rising costs, it risks fostering irresponsible borrowing and straining public finances.
Pros: The fund could prevent mass repossessions, stabilising the housing market and protecting public finances from widespread defaults. It also aligns with social responsibility, aiding those most affected by economic hardship.
Cons: It might disincentivise responsible borrowing and create future problems. Funding would divert resources from other priorities, and government intervention could distort the housing market.
Alternatives: Instead of a blanket fund, should the government consider:
- Means-tested assistance: Prioritise aid for the most vulnerable.
- Financial counselling and restructuring: Help homeowners manage debt responsibly.
- Temporary forbearance: Offer pauses on repayments in specific hardship cases.
Finding the right balance between supporting struggling homeowners and safeguarding long-term financial stability is key. Careful consideration and targeted solutions are essential to navigate this complex issue.
Have your say
What do you think of a government-backed mortgage fund? Leave your insightful comments below.