Many borrowers have preferred to struggle on with the mortgage, paying lower monthly amounts rather than move into a specially constructed mortgage rescue scheme where they give up part or all of the ownership of their home.
But these arrangements mean the arrears have continued to pile up and have contributed to the big rise to more than 305,000 borrowers behind with payments by at least six months, announced this week by the Council of Mortgage Lenders. Nationwide and Leeds building societies are both planning new schemes through which they will set up subsidiary operations to purchase properties from hard- pressed borrowers, who will then rent. The borrower may be able to retain a share of the home or have an option to buy back later.
These schemes differ from existing ones in that the societies will run them alone rather than with housing associations. They believe this will make administration easier.
But Tim Melville-Ross, chief executive of Nationwide and CML chairman, hinted strongly that his society might have to take a firmer line with borrowers who refused the rental option.
Borrowers who can see no way out of debt because there is no realistic chance of increasing their income or because they remain unble to sell their property may have little choice but to rent.
He said there would come a point where 'either we take possession or they (the borrower) accept a rental solution'.
At the Leeds, the chief executive chief executive Mike Blackburn has also warned that forbearance cannot go on forever. But a spokesman said borrowers were not expected to be faced with impossible choices once the new scheme was set up, since it would continue with its existing one, which offers shared ownership.
Abbey National is already running a scheme similar to those planned by Nationwide and Leeds, but has saved only eight borrowers so far. About half of those approached have refused to switch to renting.
But a spokesman said that in many cases the people who had refused had made great efforts to deal with their arrears by taking part-time jobs and generally 'showing commitment'. No one who had turned down the rental scheme had been repossessed.
David Gilchrist, group general manager, said that for now Halifax was happy to continue with 'forbearance', reducing payments.Reuse content