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The Homeowners Mortgage Support (HMS) scheme is a UK-wide scheme that aims to help home owners who are experiencing a temporary reduction in income and are struggling to pay their mortgages. The scheme allows these owners to defer part of their mortgage payments for up to two years. The deferred payments will then be rolled into the total cost of the mortgage.

From 21 April 2011 the homeowners mortgage support (HMS) scheme will be closed to new applicants

What is HMS?

HMS is a new scheme set up by the UK Government to help home owners who are experiencing temporary financial problems. If you are accepted onto the scheme, you'll be able to switch to an interest-only mortgage, then reduce the interest payments for up to two years. This should give you time to get your finances back on track, and prevent your lender from taking steps to repossess your home.

The interest you don't pay will then be added to the outstanding capital you owe (the capital is the original sum of money you borrowed to buy your home), and you'll pay it off once the two years are up, over a period of time to be agreed with your lender.

What do I need to consider?

Before joining the scheme, it's important to be aware of the risks involved, and remember that:

• the amount of money you end up paying towards your overall mortgage will increase as a result, and
• your full mortgage payments are likely to go up once you leave the scheme.

Therefore you must be sure that your financial situation is going to improve over the next couple of years (for example, because you get a new job, or return to work after having a baby). Otherwise you could end up in more debt than before.

You also need to think about the value of your home in relation to the size of your mortgage, and whether house prices in your area are going up or down. If, by the time you leave the scheme, you are still experiencing financial problems and have to sell your home, or your home is repossessed, you may have fallen into negative equity, whereby you owe your lender more than your home is worth.

Who can apply to HMS?

You should be eligible for HMS if:

• your financial problems are only likely to be temporary. For example, this could be the case if you, your partner or anyone else in your household who helps pay your mortgage have had your shifts or overtime reduced for a set amount of time, have lost a job but are looking for a new one, or are off work temporarily due to ill health, or caring responsibilities.
• the property is your only home and you own it, either jointly or on your own. If you own part of your home through a shared ownership scheme, you'll also be eligible.
• you aren't eligible for or already receiving support for mortgage interest
• you have been paying an agreed amount towards your mortgage payments for at least five months before being accepted onto the scheme. This doesn't need to be the full amount of the payments (in fact, you may not have been paying anything at all) but you must have agreed this with your lender.
• you have a mortgage or loans of no more than £400,000 secured against your home. If you have any business loans secured against your home, these won't be included in this total.
• you took out your mortgage or remortgaged your home before 1 December 2008, although you may be eligible if you remortgaged after that date, but did not increase the amount you owe on your mortgage.
• you don't have payment protection insurance to cover your loans
• you have no more than £16,000 in savings
• you're a British citizen, or have leave to remain in the UK with recourse to public funds, or are an EEA national or from Switzerland, and your home is in the UK
• the property isn't a buy-to-let or investment property
• you've discussed other ways of solving the problem with your lender, for example, by extending the term of the mortgage or making interest only payments, and been unable to reach an agreement
• you can afford to pay at least 30% of the monthly interest payments due on your mortgage.

You can apply if you're eligible for the mortgage to rent or mortgage to shared equity schemes but you can't apply for these schemes and HMS, so, with the help of a money adviser, you'll need to decide which is more suitable for your situation.

Your lender must be signed up to HMS (not all are) and must agree to you joining the scheme. You can see a list of lenders who are signed up here. Even if you meet all the eligibility criteria, your lender may still turn you down. If you have other debts secured on your home, all your creditors must agree to you joining the scheme. If they're not members of the scheme, they must agree a repayment schedule with you, and consent not to take debt enforcement action against you while you are on the scheme.

How do I apply?

Before you can apply to the scheme, you must get advice from a money adviser at a Citizens Advice Bureau, Payplan, the National Debtline or the Consumer Credit Counselling Service. If you have other debts besides your mortgage, you must get face to face advice before you can be considered for the scheme, otherwise telephone advice may be enough.

When you go and see the adviser, it will help if you take with you:

• your passport, birth certificate, national insurance details or other documents that can prove you're a UK or European citizen, or have leave to remain in the UK
• proof of your temporary reduction in income, for example, bank statements, wage slips, a letter from your employer or doctor, if you're off work for ill-health, your P45 (if you've been given one)
• information about your mortgage, such as a copy of your mortgage agreement, letters from your lender and details of any mortgage insurance you have
• information about any savings you have
• details of any other debts you have.

The money adviser will go through all the options open to you and will discuss with you whether or not HMS offers a good solution to your problems. They may be able to help you find a better way to sort out your financial situation, for example, by selling your home, claiming benefits or applying to the mortgage to rent or mortgage to shared equity schemes.

If you decide to apply to HMS, your money adviser will help you draw up a common financial statement (CFS) to show to your lender. The lender will then assess whether or not you are suitable for the scheme, and will either accept your application or turn it down.

Will I have to pay to join the scheme?

No, your lender can't charge you to join the scheme. However, they can charge you if they need to change your mortgage to an interest-only mortgage, provided this is stated in the terms and conditions of your mortgage agreement.

What happens if I'm accepted onto the scheme?

If you're accepted onto the scheme, your lender will probably need to move you to an interest-only mortgage. Bear in mind you may have to pay a charge for this, although this may be rolled into your total loan. The lender will also tell you how much your interest payments will now be this will be at least 30% of the interest you'd usually pay but may be more, if your lender thinks you can afford it.

Your lender will send you a letter explaining all this, and giving you a set amount of time to make up your mind whether or not to accept. It's a good idea to talk to your money adviser again at this point, to make sure you understand the offer and can afford the payments set out by your lender, and that entering the scheme is definitely the best option for you.

Once you're on the scheme, on top of the monthly minimum interest payment, you must pay as much extra money into your mortgage as you can afford. This means that if you have any other non-priority debts, such as credit card bills, you must pay as little as possible towards these, to prevent the creditor taking you to court, and put the rest of the money towards your mortgage. Bear in mind that this is likely to affect your credit rating.

Your lender will send you statements showing how much interest you've paid and how much is deferred, so you can keep track.

What happens after I've been on the scheme for a year?

After a year, your lender will review the situation to make sure you're still eligible for the scheme, and reassess your payments. If things are going well, they will extend the scheme for a further year. You'll need to talk to a money adviser again to help you prepare for the review.

Can the interest payments go up or down?

If your mortgage is linked to interest rates, or if you are on a discounted interest rate and it comes to an end while you are on the scheme, your payments will stay the same regardless of whether the interest rates go up or down. However, bear in mind that if interest rates go up, you'll be deferring a larger amount of money, which you will need to pay off at some point.

What if my situation changes while I'm on the scheme?

If your situation changes in any way, either positively or negatively, you must let your lender know at once don't wait for your one-year review. For example, you should let your lender know if:

• you lose your job or get a new job
• you start receiving benefits or lose any benefits
• you receive any extra money, such as a bonus, an inheritance or prize money
• the number of people in your household changes, for example, because of relationship breakdown, a new baby or a relative coming to live with you
• you are ill, or have to reduce your hours to care for someone who is ill
• any other creditors take action against you.

If these changes mean you can no longer make your monthly interest payments, you may be able to re-negotiate the amount with your lender, provided you can still pay at least 30%. If not, you may have to leave the scheme. Talk to a money adviser if you're in this situation, as they may be able to help you find another solution and prevent your lender repossessing your home.

If the changes are positive (for example, if you receive an inheritance), you may no longer be eligible for the scheme, so will have to leave. It's a good idea to talk to a money adviser again at this point, to make sure you use your increased income in the best possible way to sort out your financial situation.

If you become eligible to claim support for mortgage interest while you're on the scheme, you can stay on the scheme during the 13 week waiting period but will then have to leave.

What happens when I leave the scheme?

You can only stay on the scheme for two years. During that time, you can leave the scheme if your financial situation improves, and re-enter it again if your situation gets worse, provided your lender agrees.

When you leave the scheme, your lender will send you a statement showing how much you still owe. If your financial situation has stabilised, you can revert to a repayment mortgage and your lender will let you know how much your payments will need to be in order to pay off the mortgage at the end of its term. If the payments are too high, you may be able to extend the term of the mortgage, to lower them. Bear in mind, however, that this will increase the amount you need to pay altogether, as you'll be paying more interest on the loan.

Alternatively, you may be able to continue making interest-only payments, but you must have a plan for paying off the capital when your mortgage term ends. Talk to a money adviser for more help with this.

What if I still can't make my mortgage payments?

If your financial situation doesn't improve after the scheme has ended and you can't go back to making full payments, your lender may take steps to repossess your home. If they then sell your home and there's a shortfall between the sale price and the amount you still owe on your mortgage, the Government guarantees to pay the lender 80% of any deferred interest that hasn't been paid back.

What if I'm not happy with the way my lender has treated me?

If you think your lender has treated you unfairly or rudely, or you think they have discriminated against you in any way, you can complain using their formal complaints procedure. If you're unhappy with the way your complaint is handled, you may be able to complain to the Financial Ombudsman Service.

Where can I find out more?

You can find out more about HMS at the Direct.gov website.