“Benefits are to be cut” is a popular tag line when it comes to the coalition government’s regime of austerity. Most think that the axe will fall on the long term sick, unemployed or the benefit cheats. However, one area which has received relatively little publicity of late proves that the cuts are likely to be far reaching and have a massive effect on peoples lives and in particular their homes.
Mortgage interest
Presently, if you have been in receipt of a means tested benefit for 13 weeks then you may qualify for mortgage interest payments on your mortgage. In such cases the Department of Work and Pensions will pay the Interest on that part of your mortgage that was used to purchase the property or for home improvements. Typically this benefit is of use to the thousands of people who find themselves out of work as a result of the current economic plight. For many people who face financial crisis as a result of the recent recession mortgage interest relief provides a life line which often means the difference between paying the mortgage and losing a home. Homeowners are still be required to make up any shortfall and pay something towards the arrears but affordability is more likely
Mortgage possession
When a home owner faces possession it is usually as a result of a change in circumstances leading to a reduction in income. This may mean that a mortgage payment is no longer affordable. If more than two month arrears accrue then a lender can seek possession.
Once an order for possession has been sought through the courts it is for the home owner to demonstrate that the mortgage and arrears are affordable and that they can be repaid in a reasonable amount of time. If this can be shown then a Judge can adjourn, postpone or suspend the proceedings.
However, where there has been a reduction in income, perhaps from a loss of job, it may be impossible to show that a mortgage is affordable without help form the state. This is where mortgage interest is so helpful. The state will pay the interest on the mortgage which often means more disposable income for the home owner and greater likelihood that the mortgage payments may still be met.
The problem
Previously the DWP paid mortgage interest at a rate of 6.08% which in the present economic climate is very high. Often, if a person qualifies for mortgage interest it covers the majority of, if not all of the mortgage payments. But this has now changed form October 2010, the rate has been reduced to 3.63%. This may seem trifling but the result could be huge. For people who are only just keeping their head above water finding extra money for mortgage payments may be impossible. As a result it is likely to only increase mortgage repossessions over the coming months.
The effect of this change is likely to hit the very people who have already been hit hardest by the recession – those who have lost work as a result. They now face the spectre of losing the family home as well. But it will also likely to put added strain on the public purse. I am of the view that the cost of re-housing repossessed property will far outweigh the savings due under this reduction. A person who faces repossession who received mortgage interest relief will be required to be re-housed and even then will likely claim housing benefit for that rented property. One must therefore question the merit of such a policy that seems to target those that have already sacrificed the most during the economic slump.
Nobody wants the benefit system to offer a “free ride” and cuts are necessary. However, by virtue of the fact that people receiving Mortgage Interest payments own a property it can be assumed that they have “contributed” and in most cases are desperate to return to work. This change will result in homes being lost for families who find themselves out of work because of the state of the economy.
If you are in arrears with your mortgage and require advice and guidance then you can contact Daniel Ralphson on 01616 966 229.
By care & welfare benefits solicitor, Daniel Ralphson