Tories rebel as home loan subsidies vanish

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GOVERNMENT moves to increase substantially the cost of home loans are provoking a fresh revolt on the Tory back-benches.

In the wake of the disastrous Dudley West by-election, Conservative MPs who rebelled over the doubling of VAT on fuel are regrouping to defeat or water down plans to abolish the home owners' mortgage safety net.

At present, home owners who lose their jobs have the interest on their mortgage paid by the State until they are in work again, but Peter Lilley, Secretary of State for Social Services, is determined to cut the £1 billion a year cost of the subsidy.

Early next year he is to introduce new regulations that will make holders of new mortgages wait for nine months before they become eligible for support. Existing mortgagees will qualify after two months, but receive only half the current entitlement for four months before being compensated in full. The ceiling on qualifying mortgages will also fall by £25,000 to £100,000.

To make up the shortfall, home owners will have to take out extra insurance, costing up to £70 a month. The Council for Mortgage Lenders fears that "high risk" categories, such as the growing number of employees on short-term contracts, won't be able to get the necessary insurance and will be "effectively excluded from owner occupation".

Nicholas Winterton, MP for Macclesfield, who spearheaded the successful parliamentary rebellion over VAT, condemned the plan as "intolerable" and said he would vote against it. Up to a dozen fellow back-benchers are understood to be ready to join him.

"This could cost people £1,000 a year or more. It makes home ownership more onerous. A lot of middle-income groups are going to be upset by this. I have warned the Treasury that when people take in what is going to happen and the additional liability, there really could be a second rebellion.

With John Major's majority - including the unwhipped "Gang of Nine" - down to 13 after last week's by-election, a revolt of the scale envisaged by Mr Winterton would defeat the Government. Ministers would have to rely on the votes of the Ulster Unionists, who may seek amendments to the Lilley plan.

The Government argues that paying the mortgage interest of jobless home owners is ballooning out of control. In 1979, £31 million was paid out to 98,000 claimants. But as home ownership, house prices and mortgages increased, the bill rose sharply, to £33

5 million in 1987. This year, the cost will be £1 billion, paid to 548,000 claimants.

Those moving house and taking out a new mortgage, and those entering home ownership for the first time, will be hardest hit by the new measures, which are due to come into operation in October. More than half a million new mortgages are taken out each year, and there are 10,375,000 mortgage holders in Britain.

The average mortgage is £46,353, and the average home buyer earns £21,540 - precisely the middle-income group that ministers are targeting in order to regenerate the "feel-good factor" in the run-up to the general election.

A spokeswoman for the Council for Mortgage Lenders said that the number of borrowers more than a year in arrears on their mortgage had fallen slightly, from 151,000 to 142,000. But the removal of the income support safety net would mean more borrowers getting into arrears "because they will not have the funds available'.'