Government thinks again on relief cut

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A government U-turn over one of the main planks of its planned cuts to mortgage interest relief would safeguard benefits for more than 500,000 borrowers.

Ministers are believed to be considering a proposal whereby existing home buyers who obtain a new mortgage after 1 October will no longer be treated as new borrowers.

The turnaround means they will not be subject to new rules by the Department of Social Security, whereby mortgage interest relief is withheld for the first nine months after job loss.

Instead, householders will continue to be treated as existing borrowers, for whom the DSS plans to stop interest payments for two months, pegging them at 50 per cent for a further four months.

The move, likely to benefit about 45 per cent of people obtaining new home loans each year, is the first important concession by the Secretary of State for Social Security, Peter Lilley, to a hard-fought campaign by mortgage lenders. It follows persistent claims by experts that the housing market faces meltdown if the Government's proposals are not amended.

The Council for Mortgage Lenders said yesterday: "We are not privy to what ministers are planning, but we have made representations to the DSS and hope the department may be prepared to listen to us on this issue."