Mortgage interest support ‘has been largely dismantled’: Steve Webb
“If a landlord loses their job, the social safety net has been largely dismantled in recent years.”
Only 12,845 households receive government assistance, compared to around 90,000 before the system was reformed in 2018 and more than 200,000 a decade ago.
Until 2018, anyone with a mortgage who lost their job could apply for help to cover interest costs. But from April 6, 2018, the benefit system was replaced by a system of repayable loans, secured by the property of the claimant.
People with a mortgage can apply for help with interest costs provided they are in receipt of a ‘qualifying benefit’ such as Universal Credit, Pension Credit or Employment Support Allowance.
Any assistance must be repaid with interest – in effect the government takes a second charge on the value of the property and the debt to the government must be cleared when the property is sold.
For claimants of working age, no help is available for the first nine months out of work and once help has started the DWP will only contribute interest on the first £200,000 of outstanding mortgage (or £100,000 in the case of new claims from people over retirement age).
DWP will pay interest on the assumption of a standard interest rate applied to all applicants, rather than the actual interest rate paid; this interest rate is currently 2.09%, although this may change in light of recent market developments.
Interest is also applied to the amount owed to the government. The current rate is 1.4%, but the DWP has the power to change this rate twice a year if it wishes.
Analyzing the data, former pensions minister Steve Webb said the limits of the scheme mean people can accumulate significant arrears in the first nine months they are out of work before any help begins. In addition, those with relatively large mortgages (e.g. first-time buyers) and those paying above-average mortgage rates may find that any help they get from the DWP (which itself must be repaid with interest) is not sufficient to cover their current mortgage costs. People who lose their jobs due to long-term illness may be particularly affected if they have little chance of returning to paid work and risk losing their housing.
Steve Webb, Partner at DWP Consultants said: “If a tenant loses their job, they can usually get Social Security assistance to cover most of their rent. But if a landlord loses their job, the social safety net has been largely dismantled in recent years. In most cases, no mortgage assistance is available for nine months, during which time large arrears could accumulate. And even when assistance begins, it may be less than actual interest payments and must be repaid with interest when the property is sold.
“Many working homebuyers may be completely unaware of the lack of support they will get from the state if they lose their job and may need to think hard about how they would maintain their mortgage – and keep their home – if they were to lose their One thing is clear: they cannot count on the government to support them.