The Council of Mortgage Lenders (CML) welcomes the government's consultation on the proposed home-owner mortgage support scheme.

This is the scheme that would enable some borrowers to defer a proportion of their interest payments for up to two years, with the government underwriting a proportion of the lender's ultimate risk of loss.

However, the CML says it is important to recognise that the impact of the deferred payments may be significant for borrowers once they get back on their feet financially. A number of important structural and operational questions, as yet to be decided, will also have a significant influence on the attractiveness and take-up of the scheme by both borrowers and lenders.

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The CML understands that legislation to empower the Government to provide the guarantees will be needed. While recognising the desirability of ensuring that any scheme is implemented quickly, the CML urges the Government to undertake a regulatory impact assessment to ensure that the scheme fulfils its objectives without giving rise to unintended consequences. The operational issues need to be resolved before implementation if the scheme is to be effective in meeting its objectives.

Commenting on the proposed scheme, CML director general Michael Coogan said: "This scheme is not a payment "holiday" or a "free lunch", but rather a payment deferral. The future impact on borrowers' repayments may be very significant if they defer a high proportion of their interest, and the scheme is not without the risk of potentially unwelcome impacts on lenders.

"However, for eligible borrowers who would otherwise face repossession it may make the difference between keeping or losing their home, while for lenders it makes longer term forbearance a less risky option. If the government can find ways to address the capital treatment of loans within the scheme, and the period and amount of the guarantee for lenders, this would improve its attractiveness and likely level of take-up."

(CD/JM)