The benefits safety net for people with mortgages has been largely ‘dismantled’, according to LCP.
Figures released by the Department of Work and Pensions showed the number of people receiving help from the government with their mortgages has collapsed since the reform of the system in 2018.
Currently, only 12,845 households are getting help from the government, compared with circa 90,000 before the 2018 reform, while over 200,000 were in receipt of support a decade ago.
Number of scheme users by region
Yorkshire and The Humber
East of England
Source: Department of Work and Pensions, Support for Mortgage Interest Statistics, May 2022
Consultants LCP has warned working homebuyers that the ‘safety net’ they might have assumed would catch them if they lost their job and needed mortgage help has ‘largely disappeared’.
“They may be shocked to learn that they would get no help in most cases for nine months and then only a capped and repayable loan from the government to help towards mortgage costs.
“It’s quite a wake-up call to make alternative arrangements, whether that is trying to set aside a rainy day fund, consider some form of mortgage protection, or make other plans,” LCP partner, Steve Webb said.
Until April 2018, anyone with a mortgage who lost their job could apply for government support to help with interest costs.
After that, the system was replaced with one of repayable loans, secured against a claimant’s property.
The latest figures from May of this year showed that the system has not been popular, with only 12,845 loans in payment, compared with circa 90,000 receiving help through the benefit system in March 2018.
A key difference with the system is that any help has to be repaid with interest.
The current rate is 1.4 per cent, but the DWP could change this rate twice a year if it wishes.
LCP said in effect, this means the government takes a second charge on the value of the property and the debt to the government has to be cleared when the property is sold.
To qualify for the scheme, the applicant must be in receipt of a ‘qualifying benefit’ such as universal credit, pension credit or employment support allowance.
LCP highlighted a number of limitations to the scheme.
“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,” Webb said.
“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.”
No help is available to working age claimants in the first nine months out of work and once it does start the DWP will only contribute to the interest of the first £200,000 of the outstanding mortgage.
For new claims for those over pension age, this is only £100,000.