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Is the government right to reduce interest on the support for mortgage interest scheme?

Today is D-Day for many people in the UK who have lost their jobs and are fighting to retain their homes, with the UK government slashing its share of interest paid on mortgages from 6.08% to the market average of just 3.63%. This is a controversial move designed to save the UK government billions of pounds and reduce the budget deficit. However, as you might expect the scheme has attracted more than its fair share of criticism with the potential to place hundreds of thousands of families on the homeless list. So was the government right to reduce support for scheme?

There is no doubt that the 6.08% interest paid by the UK government was benefiting the UK banking community more than households in the UK. When you consider the average mortgage rate in the UK is just 3.63% you begin to wonder why the banks were taking 6.08% from the UK government when in fact these payments were guaranteed by the authorities. There will obviously be some short-term pain with regards to those dependent upon the mortgage support scheme but ultimately in the longer term the hope is that the scheme will become more cost-effective and more reflect the underlying market conditions. Whether this is a brave or a foolish move by the authorities remains to be seen.

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