The financial support required for a major government scheme aimed at homeowners struggling to make mortgage repayments still remains uncertain despite the government setting a deadline that has now passed. 

The scheme, which was to start in April, defers payments for some people who suffer a temporary loss of income.  

The director of one major building society has claimed that around 50% of building societies will not take part in the Homeowner Mortgage Support Scheme. 

The government has said it would release details of participating lenders soon, although this is unlikely to calm those in financial trouble. 

In December, Prime Minister Gordon Brown said that people made redundant or who face a “significant loss of income” would be allowed to defer a proportion of interest payments for up to two years.  

He suggested that the eight largest lenders (HBOS, Nationwide, Abbey, Lloyds TSB, Northern Rock, Barclays, RBS and HSBC, which together provide 70% of mortgages) have agreed to sign up to the scheme.  

One lender, Saffron Building Society, has become the first to announce that it would not sign up, although it applauded the sentiment of the scheme. In a statement aimed at explaining this seemingly contradictory statement they said, “We have concerns that the reporting and administration requirements under the scheme are overly burdensome, especially as we do not believe that this scheme is likely to provide any additional help to our borrowers.” 

The estimated 50% of building societies which will also not sign up to the scheme are thought to have the same or similar reasons as the Saffron Building Society. The Building Societies Association told the BBC’s Working Lunch program that the complexity of the scheme meant that a 200-page document was sent to building societies only a week ago.  

An initial deadline of 20 March was set for lenders to signal their support to the scheme but the government said that it would not yet release names of the participants.  

In an attempt to clarify the situation, the Department of Communities and Local Government issued a statement which said, “We are urgently continuing discussions with lenders on joining the scheme and it is wrong to suggest there is a cut off point for signing up. We want to see as many lenders as possible participating in the scheme. As we have previously said, the scheme will be open for business with the first lenders in April and will make a real difference to households who are worried about meeting their mortgage payments in the difficult economic climate.”  

A series of conditions have already been outlined for those homeowners who could benefit from the scheme. Those who have a “temporary” loss of income, have a mortgage of less than £400,000, and savings of less than £16,000 will have the opportunity to be involved.  

Their monthly payments will be reduced to a minimum of 30% of what they were paying before, and the deferred amount will be added to the outstanding mortgage to be paid later.  

The opposition parties have said that the scheme was announced hastily to grab publicity, without having been properly thought through. It is certainly true that the government has been keen to show its support for struggling homeowners amid gloomy data regarding housing and employment, but that support has been very slow to materialise once it has been ‘announced.’ 

There is little analysis to be done on the issue besides expressing a hope that the Government will get its act together. Fast.

Despite receiving a Government bailout, RBS/NatWest will not be passing on the latest cut in the Bank rate to its variable rate mortgage customers. The bank, which is majority owned by the taxpayer, said it had to consider savers too and its standard variable rate (SVR) was already competitive.  

Some of the UK’s other big mortgage lenders have announced SVR cuts, although most were obliged to do so. Most of the four million tracker mortgage customers in the UK will automatically benefit from the cut.  

Halifax, Nationwide, Lloyds TSB and Skipton have all cut their standard variable rate (SVR) by 0.5 percentage points in line with the Bank rate cut. Many of the lenders who are cutting rates are obliged to do so, having vowed that their SVR would only be a certain percentage above the Bank rate.  

Abbey, which failed to reduce its SVR last month, has cut its rate this time by 0.45 of a percentage point. The changes only come into effect from 1 April. But RBS/NatWest said that it was going to keep its SVR at “its current competitive rate” of 4%.  

In a statement RBS said, “The continued downward trend to Bank of England base rate has had a significant impact on customer savings rates. It is more important than ever to consider both our savings and mortgage customers when determining any rate changes.” 

Roughly translated this means that money the grabbing behaviour has not changed along with the main ownership of the bank. 

Unlike some lenders, RBS/NatWest does not have a collar on tracker deals, so customers with tracker mortgages will benefit from the Bank rate cut. Fixed-rate customers, by definition, will see no change.  

The bank stressed that interest rates for savings accounts would fall, on average, by less than 0.2% and many would be unchanged.  

As many of you will know, RBS last month announced the largest annual loss in UK corporate history and that it would receive a fresh injection of taxpayers’ money. It is also under fire over the pension of former boss Sir Fred Goodwin.  

Following the previous five Bank rate cuts, the average SVR had settled at an average of about 4.77%, according to financial information service Moneyfacts.  

Only 41% of lenders passed on any of the February Bank rate cut to their SVR borrowers.  

The Council of Mortgage Lenders (CML) released a statement defending its members who have not passed on interest rate cuts. “This latest cut presents immense challenges for lenders whose margins are already squeezed as a result of previous reductions, leaving little scope to lower discretionary mortgage rates further.”  

The general feeling on the market is that those who cut their SVR last time will keep it unchanged following the Bank of England’s latest decision. While Halifax will cut its rate again to 3.5%, Bank of Scotland mortgage customers face a SVR of 4.84% which is still under review, despite being part of the same banking group. 

Underneath the discussion about publicly owned banks passing on rate cuts to consumers there is an inherent paradox. The banks want to continue pleasing their shareholders as they have always done, but now, through the government, taxpayers are the shareholders. This means that taxpaying customers are being ripped off so the bank can satisfy their taxpayer shareholders. 

As this financial crisis continues, and the Government continues to grasp for a solution like a drowning man at a straw, strange circumstances such as this will become much more common and no one will be anymore better off.