Tories push for mortgage restrictions

Secret Conservative plans to cut public spending by forcing home- owners to take out mortgage protection insurance are disclosed in a draft election manifesto drawn up by Tory moderates.

New limits on how much a house buyer can borrow are also proposed, limiting mortgages to three-and-a-quarter times a person's salary. And abolition of tax relief on mortgage interest - Miras - is recommended.

The initiatives are suggested in New Policies for a New Century - A Conservative Election Manifesto, put together by the influential Tory Reform Group for inclusion in John Major's programme for a fifth-term Conservative government.

A draft of the document leaked to the Independent on Sunday drew sharp criticism from the Opposition last night. Labour's City spokesman, Alastair Darling, predicted that the policies would mean more expensive mortgages, more house repossessions and a depressed housing market.

The ideas floated by the Tory "wets" map out a policy direction already embarked upon in the last Budget, when Chancellor Kenneth Clarke introduced restrictions on social security payments for home-owners who lose their jobs. Social security for unemployed mortgage holders cost pounds 1.1bn in 1994/95.

The Tory Reform Group proposes that "in the lifetime of the next Parliament, we will require all mortgage holders to have insurance against unemployment, long-term sickness or other difficulty that would prevent them paying their mortage.

"Compulsory mortgage protection insurance would be introduced with the aim of phasing out social security mortgage payments."

Under the new rules, new mortgage holders who become unemployed have to wait nine months before the Department of Social Security will pay their mortgage interest. Existing home-owners have to wait two months, and then get half their mortgage interest paid. Full relief starts after four months. The safety net is confined to those on income support, and is limited to mortgages up to pounds 100,000.

The draft manifesto argues: "The cost of supporting those who are unemployed with the cost of their mortgages has risen sharply and is fast becoming unaffordable.

"Mortgage interest relief has been reduced because it is anomalous to have a subsidy which benefits the better-off at the expense of lower-income taxpayers. The abolition of the remaining relief must be the goal in the longer term."

The policy paper, which has the imprimatur of former Welsh Secretary David Hunt, who is president of the Tory Reform Group and contributes a foreword, also proposes a cap on how much house buyers can borrow. "Wider home-ownership has been marred by the recent fall in house prices and the rise in repossessions," it says.

"It is now apparent that some lenders operated irresponsible loan policies, allowing people mortgages based on too large a multiple of salary. Some borrowers took on more than they could afford and others fell victim to a world-wide recession. The pain of those who get into difficulty with their mortgage is very real and we need to do more to avoid it."

Alastair Darling said of the proposals: "Home-owners have been battered over the last three years, and it is quite clear that at the highest level in the Tory party there are plans for further restrictions on mortgages, which are bound to depress the housing market still further.