Safety net for remortgagers brought forward

A 'safety net' insurance scheme for homeowners at risk of repossession should be made compulsory for all remortgagers, it has been recommended.

The Joseph Rowntree Foundation (JRF) unveiled a report today which lays out arguments for the adoption of the scheme which would cover repayments should mortgage-holders face unemployment, sickness or an accident.

Not only would the Sustainable Home Ownership Partnership (Shop) insurance be cheaper than private protection products available, the costs would be shared between the government, lenders and the borrower.

JRF suggests it is run as a joint venture between the government and lenders and should cover ten months of complete mortgage payments.

The charity said the scheme would encourage lenders, who would pay 25 per cent of the cost, to act more responsibly as they would have to contribute more if their repossession rates were higher. The government would ideally provide a further 25 per cent and borrowers 50 per cent, said JRF.

Rising repossession rates is one of the factors behind JRF's motivation to recommend the scheme. It fears, if the economy were to experience a similar slump now as it did in 1992 during the peak of the housing market collapse, 25 per cent of homeowners would face the risk of repossession.

Mark Stephens, of the Centre for Housing Policy, was co-author on the report. He said: "Since 1995, restrictions to the state safety net mean home-owners have to wait nine months for any help.

"Take-up of private insurance is so low only one-fifth of home-owners are protected."

The report suggests Shop, along with housing tax credits, could be effective solutions for homeowners faced with repayment problems because of sickness or unemployment as effective solutions.

The scheme should also be made compulsory to all remortgagers and new home buyers, the report said.

Mr Stephens added: "With market conditions tightening it's time to re-think how to best help these households and to provide better underpinning for the housing market – and wider economy."