A former pensions minister has claimed that homeowners who end up struggling with mortgage payments due to losing their job could build up hefty arrears, before money help comes.
Sir Steve Webb has stated that the number of households receiving UK Government help with mortgage costs has fallen significantly due to a reform to the system four years ago, in 2018.
The Daily Record reports that from April 2018, a system for mortgaged homeowners on benefits who have lost their jobs was replaced with repayable loans, secured against the claimant's home.
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Former MP for the Liberal Democrats, Sir Steve pointed out that figures in May 2022 suggested that approximately 12,845 loans were in payments, compared to 90,000 in March 2018 receiving mortgage help. Also noted in the figures, one decade before the regime was announced, around 200,000 were being helped.
As mortgage rates continue to rise, alongside household bills, more people are struggling to keep up with their payments in the months ahead. Under the system currently, those with a mortgage can claim for help with interest costs if they are on qualifying benefits, like Universal Credit, pension credit or employment and support allowance.
Sir Steve noted that the limitations on the new scheme mean people may build up significant arrears over the first nine months that they are out of employment, before help begins. Once help starts, the Department for Work and Pensions (DWP) will only contribute to the interest on the first £200,000 of the outstanding mortgage, or just £100,000 for claimants over the pension age.
The DWP will pay interest on the assumption of a standard interest rate that is applied to all claimants, rather than the actual interest rate that is being paid. Support for mortgage interest is set at a level equal to the Bank of England’s published monthly average mortgage interest rate.
Subsequent changes to the standard interest rate only occur when the Bank of England average mortgage rate differs by 0.5 percentage points or more from the standard rate. This means those with large outstanding mortgages, like first-time buyers, could find that the eventual help they get is not enough to cover their ongoing mortgage costs.
Sir Steve, who is now partner at consultants LCP (Lane Clark & Peacock), said: “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.”
A DWP spokesperson said: “We recognise people are struggling with rising prices, which is why we are protecting millions of the most vulnerable families with at least £1,200 of direct payments and saving households an average of £1,000 a year through our new energy price guarantee.
“If someone is having difficulty meeting their mortgage commitments, it is important they speak to their lender as they will have set processes in place to assist.
“Under FCA (Financial Conduct Authority) guidance, the lending industry must consider a range of support options, including offering to make up the difference in interest payments.”
Those who are struggling with mortgage payments could be offered various options by their lender, and this is dependent on circumstance. Options include:
part-payment plans
mortgage term extensions
temporarily transferring to an interest-only mortgage
deferring interest due
The money owed may be added to the mortgage balance.
A spokesperson for trade association UK Finance said: “Lenders stand ready to help customers who might be struggling with their mortgage payments.
“There is a range of tailored support available, anyone who is concerned about their finances should contact their lender as soon as possible to discuss the options available to help.”
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