CHANCELLOR Alistair Darling will this week urge mortgage lenders to give a "fair deal" to borrowers who are struggling to repay their home loans.
The Treasury wants the Council of Mortgage Lenders (CML) to encourage its members to be more lenient with homeowners who are facing repossession.
In Scotland, 900 families became homeless due to mortgage defaults last year – an increase of 14% fro
m 2006 – and Shelter Scotland says it has been "overwhelmed" by householders seeking advice on housing debt this year.
But the CML said although lenders may each have different policies, repossession is already a last resort that is strictly governed by the regulatory body, the Financial Services Authority (FSA).
And in a sign that banks and building societies feel they are being unfairly targeted, the CML will set out its case for more Government aid for householders. It says state help for people on benefits to pay mortgage interest relief is too little, too late.
Tuesday's meeting with the CML at 11 Downing Street will be followed by an announcement on a new temporary lending programme for UK banks aimed at easing the logjam in the credit market.
The scheme would allow banks to swap their mortgage-based assets for Government bonds, making interbank and individual loans more fluid.
The Treasury and the Bank of England were continuing to work on the scheme – the largest ever of its kind – over the weekend and are expected to make a joint announcement this week.
A Treasury spokesman dismissed as speculation reports that it would involve £50bn of Government bonds with a maturity of up to three years.
Vince Cable, the Liberal Democrats' shadow chancellor, warned last night that taxpayers' money must not be put at risk and said the banks should follow the lead of the Royal Bank of Scotland by raising capital from its shareholders.
"There is no short cut to re-establishing trust and it must not happen on the back of a Government bailout," he said. "Raising new share capital through rights issues is the only way forward – one in which the shareholders share the pain."
A Treasury spokesman said: "We're not talking about extending regulation, it's more pragmatic than that. The system that leads to repossessions is a largely discretionary one, so it may be that things could be done more sensitively in response to where things are at the moment."
A CML spokeswoman said that in its meeting with the Treasury and a separate one with Work and Pensions Secretary Stephen Timms tomorrow it would urge the Government to reverse cuts in Income Support Mortgage Interest (ISMI), which is available to people on income support, income-related jobseekers' allowance or pension credit.
The full article contains 455 words and appears in Scotland On Sunday newspaper.
