Homeowners face a ‘double whammy’ of soaring mortgage rates and threats to their jobs if the economy goes into Recession. But homeowners who lose their job may be shocked to discover that the benefits safety net for people with mortgages has been largely ‘dismantled’.
Until 2018, anyone with a mortgage who lost their job could claim benefit to help with interest costs. But from 6th April 2018 the system of benefits was replaced with a system of repayable loans, secured against the claimant’s property. The new system has not been popular, and the latest figures for May 2022 suggest only around 12,845 loans were in payment, compared with around 90,000 receiving help through the benefit system in March 2018 just before the new regime was introduced, and around 200,000 being helped a decade ago.
The key points about the new system are:
- People with a mortgage can claim for help with interest costs provided they are on a ‘qualifying benefit’ such as Universal Credit, Pension Credit or Employment Support Allowance;
- Any help has to be repaid with interest – in effect, the Government takes a ‘second charge’ on the value of your property and the debt to the government has to be cleared when the property is sold;
- There are three main limitations on the amount of help:
- For working age claimants, no help at all is available for the first nine months out of work;
- Once help starts, DWP will only contribute to the interest on the first £200,000 of outstanding mortgage (or £100,000 in the case of new claims for those over pension age);
- DWP will pay interest on the assumption of a *standard* interest rate applied to all claimants, rather than the actual interest rate being paid; this interest rate is currently 2.09%, though this may change in light of recent market developments
- Interest is applied to the amount owed to the government. The current rate is 1.4%, but DWP has power to change this rate twice a year if it chooses to do so.
The limitations on the scheme mean that people can build up significant arrears over the first nine months that they are out of work before any help starts. In addition, those with a relatively large outstanding mortgage (eg first time buyers) and those paying above-average mortgage rates could find that the eventual help they get from DWP (which itself has to be repaid with interest) is not enough to cover their ongoing mortgage costs. People who lose their job because of long-term sickness may be particularly adversely affected if they have little prospect of going back to paid work and could be at risk of losing their home.
Commenting, Steve Webb, partner at consultants DWP said: “If a renter loses their job they are generally able to get social security help to cover most of their rent. But if a homeowner loses their job, the welfare safety net has largely been dismantled in recent years.
“In most cases no mortgage help is available for nine months, during which time large arrears could build up. And even when help does start it may fall short of actual interest payments and has to 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 now about how they would sustain their mortgage – and keep their home – if they were to lose their job. One thing is clear – they cannot depend on the Government to support them”.