The Council of Mortgage Lenders (CML) have warned that government reforms have weakened the safety net for home-owners.

According to the first comprehensive study of the implications of the 1995 benefit reforms, published by the CML, while extending the qualifying period for state help with mortgage payments has helped the UK government cut benefits spending, it has reduces the safety cushion for borrowers.

The research showed that the full impact of the 1995 reforms - the most significant of which extended to 39 weeks the waiting period for entitlement to benefit help with mortgage interest - have yet to be tested by a significant economic downturn. However, researchers concluded that the benefit reforms are likely to lead to an increase in possessions should there be any significant rise in unemployment.

The reforms have allowed the Government to cut the annual cost of state help with mortgage interest payments from more than £1.2 billion in 1993 to less than £500 million in 2000, although this was achieved against a backdrop of declining unemployment.

Arguing for the reforms, the Government claimed the former benefit system was preventing the development of private insurance to cover mortgage payments, though the CML say the research shows this has only been only partially borne out by events.

Although the sales of mortgage payment protection insurance (MPPI) have been growing steadily since the CML and the Association of British Insurers began monitoring its take-up in 1998, the researchers concluded that this was due to better products, pricing and awareness, rather than as a result of the benefit cutbacks.

The research shows that sales of MPPI are fairly evenly spread among different occupational groups. Average take-up of MPPI was 29 per cent for all groups of employees, and it was only slightly lower - at 26 per cent - for unskilled workers.

The research also shows that, despite declining state support for borrowers in difficulty, lenders have not been more reluctant to lend to people who may be regarded as higher risks, such as those on fixed-term contracts or older employees. Instead, lenders have encouraged greater take-up of MPPI, changed their procedures for recovering arrears and used forbearance, usually allowing a period for borrowers to sort out their finances before beginning recovery action.

(SP)