In the last 2 weeks the government has twice extended its protection schemes for Home Buyers in difficulties with mortgages.

The first expansion was to embrace Home Buyers with mortgages of up to ?200,000. Previously this state benefit was limited to mortgages of less than ?175,000. Thanks to this scheme, anyone becoming unemployed or becoming eligible for state assistance due to income loss would see their home loan interest paid for up to two years.

The 2nd extension to the scheme was targeted at ensuring a safety net for higher income Home Buyers. Those with bigger mortgages can now benefit from a government guarantee to their lender. Under this scheme the government will completely underwrite the extra liability created by permitting Home Buyers a repayment moratorium or a reduction in repayments of up to two years on mortgages of up to four hundred thousand thousand pounds. If the mortgage is bigger than ?400,000, the guarantee will apply to the rolled up interest on the first four hundred thousand pounds of capital.

The idea behind the actions is to avoid more shocks to the already fragile House Sales UK market.

The government’s actions have arrived only just in time to be comprehensively tested by the consequences from the Nomura takeover of Lehman Brothers’ London Operation. Nomura have just announced 1,000 job losses which were essentially caused by the consolidation of the old Lehman Brothers’ operations with Nomura’s own. However, some of the job losses are due to Nomura carrying out the retrenchment proposed in its global strategic review, which aims to see the business returning global profits of about five hundred billion yen or ?3.6 billion in 2011.

In the current recession, but for the governments new schemes, the effect of a thousand previously high earning Home Buyers suddenly falling onto state benefits would see nearly all of them immediately and desperately trying for a Quick House Sale. The government knows that there are not at the moment enough Home Buyers to buy up these properties and so keep house prices at even their already woeful levels. It hopes that by allowing a two year period for these Home Buyers to re-establish themselves, the urgency for a Quick House Sale at any price will disappear, therefore the already worrying situation won’t begin to go into a self perpetuating downward spiral. The fear is that something like this recent action by Nomura, followed by a few others would have a disproportionally large impact in one geographical area (in this case London & the home counties). Without government intervention it’s feared that the sudden flood of more houses onto the market, would drag prices even lower, and leave lots more already struggling Home Buyers in negative equity, which would in turn see more of them trying for a Quick House Sale.

Posted in Finance ~