Mortgage Interest

Tuesday 19th June 2018 Westminster Hall

[Mr Philip Hollobone in the Chair]

15:54

[Angela Crawley (Lanark and Hamilton East) (SNP)]

I beg to move,

That this House has considered support for mortgage interest.

It is a pleasure to serve under your chairship, Mr Hollobone.

When people develop disability during their working life, it can disrupt those lives in profound ways, often making it impossible for them to work. Disability will not always take a person’s life plans into account, and the Government have a responsibility to stabilise people’s lives in new circumstances. Recent changes to the Government support for mortgage interest scheme mean that the safety net to help such people to keep their homes is being eroded.

Taking out a mortgage over several decades is of course always a risk. Most people would never dream, on signing those papers, that a disability might one day affect their ability to pay the mortgage. Yet with about 170,000 claims for support for mortgage interest as of 2016, the issue is clearly widespread and affects a significant percentage of home-owning families in the UK.

Until 5 April 2018 the Government had offered support for mortgage interest as a benefit to homeowners in hardship. That covered only the interest payments on their mortgage. The amount borrowed, insurance policies and arrears were to be paid by the homeowner, but for disabled claimants that in practice would mean scraping the money together from their employment support allowance and personnel independence payments.

Since April, the Government have stopped mortgage interest support, instead offering a loan to be paid back with interest. It is repaid when the home is sold, ownership is transferred or the homeowner dies, making the sale of the house more costly and difficult for the claimant or members of the family. Many people are wary of taking out a loan due to that aspect of the policy, and the effect it might have on a future house sale.

Figures contained in the Office for Budget Responsibility’s “Economic and fiscal outlook” reveal that although all existing claimants have been contacted about the change, only about 10,000 have so far agreed to take up the loan. According to the document, that is

“90 per cent short of the 100,000 expected by the end of 2018-19.”

Many constituents have also approached me about the fact the loans will be delivered by Serco, a company exposed in the Paradise papers as having

“a history of problems, failures, fatal errors and overcharging”.

Problems with the policy may cause many people to sell their unaffordable homes and move into the private rented sector. In doing so, many would be eligible for housing benefit, but that would in fact create additional expense for the taxpayer: the average support for mortgage interest claimant under the pre-April rules received about £1,800 per year, whereas the average housing benefit claimant receives about £5,000 per year.

The Government have labelled the change a cost-saving exercise, and claim that it is done in the name of fairness. The Minister stated in a letter that

“the Government believes that it is right that, when they can, homeowners should repay this financial help they receive from taxpayers to accrue an asset, which may increase in value over time,”

However, it comes at the cost of forcing people to take on repayment of a new and unforeseen loan. At the same time, housing benefit can be paid to private landlords, who are able to pay their mortgages from taxpayer money given to tenants in receipt of housing benefit, without any of the associated requirements to repay. Even the Government and the Minister may agree that that is slightly hypocritical—it is not in keeping with the new term, the loan. The change in policy is causing extreme stress to already vulnerable individuals, in addition to forcing them to pay interest out of benefits that are designed to cover basic costs of living.

That was the case for my constituent, Alistair Dickson from Stonebyres, who was in receipt of the support for mortgage interest benefit. Mr Dickson was registered as blind at work and, as a result, had to leave his job. He receives employment support allowance and disability living allowance, and has been paying his mortgage and home insurance from those payments. As a result, his household budgets are extremely tight, and it is very important to him to be able to stay in his own home. This is where he has adapted to his new circumstances as a blind person, and where he feels safe. My constituent is unable to leave the house as often as he used to as a result of his disability, so that is where he feels most comfortable. He is aware that, financially, it would be easier for him to move into rented accommodation, but that would not offer the same security, comfort or familiarity as his own home. That is therefore not an option for him. I do not believe he is alone.

Tens of thousands of disabled people, people with long-term illnesses, and pensioners who had previously claimed support for mortgage interest but who have declined to take up a loan, are in the same position. They do not know where they will scrape together the money for their mortgages. They do not know if they should pack up their homes, downsize or go into rented accommodation. They do not know whether their only option is to take out a questionable Government loan. All they do know is that that terrible policy decision has been made, putting into jeopardy their ability to maintain their own home. On their behalf, therefore, I ask the Government to pause and reconsider an ill-designed policy change to ensure that they do not penalise homeowners.

[Chris Stephens (Glasgow South West) (SNP)]

My hon. Friend gives an excellent constituent example. Does she agree that many constituents across the UK found themselves getting a surprise letter from Serco, which caused fear and alarm across the board in people affected by this policy?

[Angela Crawley]

The Government’s decision to have Serco institute this policy seems rather absurd given its recent bad press. Again, I must ask the Government to pause and reconsider this ill-designed policy change, and make sure that we do not penalise homeowners for changes to their circumstances that are beyond their control. Will the Government consider that?

16:01

[The Parliamentary Under-Secretary of State for Work and Pensions (Kit Malthouse)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I am pleased that the hon. Member for Lanark and Hamilton East (Angela Crawley) has raised the question of support for mortgage interest and I congratulate her on securing the debate. However, she seems to have developed a number of misapprehensions about the scheme, how it operates, and, in particular, how the system works.

It is worth restating the principles behind the change in the policy. Back in 1948 when the policy was introduced, the housing market was a different place and mortgage products were a different thing. In those days, it was unheard of for people to take mortgages into retirement, there was no such thing as an interest-only mortgage and the average house price was about £1,700. In the intervening decades, the housing market has changed significantly, yet this part of the benefits system remained unreformed and unchanged to reflect the reality we now face.

Back in 2015, when the reform was announced in the Budget, it was deemed to be appropriate and fair to reform the system to reflect the fact that there had been significant changes in the housing market and, as the hon. Lady outlined, to transfer this payment from a welfare payment in the benefits system to a loan. It was also decided that from a cosmetic point of view, as far as possible, there should be no change in how people see the scheme operate. It was recognised that the original scheme was designed to maintain people in their own homes and, exactly as the hon. Lady says, to ensure that they did not go into the private rental sector or lose their homes because of temporary unemployment. Back in 1948, this was meant to be something temporary for a few months or perhaps a couple of years, not the 20 years for which some people have been on it.

It was decided—we have carried this out in the execution of the scheme—that there should be as little disruption as possible to the recipients of these payments in the reformed new system. On a day-to-day basis, recipients of support for mortgage interest should see no difference between the old and new scheme.

The only difference is that when the property is sold or transferred at the end, perhaps even after the owners of the house have died, the amount of accumulated loan is recovered from that property. That is the only difference. On a day-to-day basis, the payments will still be made at exactly the same rate, with the same frequency, in the same way and with the same purpose of maintaining people in their own homes.

Let me cover some of the issues that the hon. Lady raises. On numbers, there is a significant acceleration in the number of people deciding either way. The bulk of people have now made a decision in principle. Large numbers of people are now in payment of the new support for their houses and quite a lot of people are in the process of getting through the system. The numbers are looking better and better. We expect to be on timetable for the transition to be complete later this year. We will publish statistics on SMI on a regular basis to keep the House updated.

Secondly, the hon. Lady raised Serco’s involvement. Let us be clear: Serco is not administering the loan. It was contracted only to provide information to individuals.

16:04

Sitting suspended for a Division in the House.

16:15

On resuming—

[Mr Philip Hollobone (in the Chair)]

The sitting was suspended for 11 minutes, so the debate can last until 4.41 pm. I call the Minister.

[Kit Malthouse]

Thank you, Mr Hollobone. I was going through a number of the issues that the hon. Member for Lanark and Hamilton East raised about support for mortgage interest, and I had reached the involvement of Serco, about which she raised concerns. Let me be clear: Serco does not administer the loan scheme. Serco was contracted merely to provide some of the initial information about the scheme—the initial correspondence, the follow-up phone calls to give people information about it, and the booklet to inform people how it works.

[Ged Killen (Rutherglen and Hamilton West) (Lab/Co-op)]

Does the Minister not accept that the issue is with the timescales and the lack of notice? Have the Government learned no lessons from the changes to the state pension age? What assessment has been made of the number of women affected by those changes who are also affected by this change?

[Kit Malthouse]

I do not accept that there has been a lack of communication. If anything, we have over-communicated about the scheme. We went out of our way as a Department to ensure that literally hundreds of thousands of letters were sent and hundreds of thousands of telephone calls were made. We are still trying to contact some people, given the lack of clarity about the data we need to make those contacts. We are taking this in a very steady and sensible way.

Everyone is given plenty of time to make a decision—everyone is given up to six weeks from the loan offer to decide whether they want the loan. Once the loan documents are issued and sent off and a loan offer is made, people get six weeks to make a decision. We signpost people to the Money Advice Service or Citizens Advice if they need any kind of financial advice, because neither Serco nor the Department for Work and Pensions can offer such advice. As I said, there is a communication phase, which Serco handles, and the execution and administration of the loan is done entirely by DWP operations.

[Angela Crawley]

Does the Minister accept, though, that six weeks is in real terms quite a short time in which to get the relevant and necessary financial advice? Relying on services such as Citizens Advice—voluntary, third sector services that are often financially strapped—to give people the necessary financial advice about their future seems a bit irresponsible on the Government’s part.

[Kit Malthouse]

I do not accept that sending people to Citizens Advice or the Money Advice Service for advice is irresponsible. That is exactly what those organisations are there to do, and they do it very well on a daily basis. Do not forget that the six weeks are from the loan offer—the point at which someone says in principle that they would like to have a loan. They then have six weeks in which to decide, execute the documents and send them back. There is a whole period before that in which people gather information and discuss the matter with their financial advisers and, indeed, with Serco if they need more information on which to make a decision. Do not forget that the communication process started in July last year, so it has been ongoing for quite a while, and tens of thousands of people have successfully made a decision either way.

[Chris Stephens]

The Minister seems to indicate that affected individuals receive correspondence from his Department before the Serco letter. That is not what my constituents tell me, so will he place that correspondence in the Library for us to review?

[Kit Malthouse]

No, people do not receive correspondence prior to the Serco letter. An initial letter and an information booklet are sent out by Serco to warm them up to the change that is coming, and there is then a variety of follow-up information. Once someone has had all the information and thinks they are in a position to make a decision, they are in effect handed over to the operations people in the Department, who proceed to execute the loan—or otherwise—and load them on to the system for payment. As I said, tens of thousands of people have successfully made the transition, and many people are now receiving payment of the new support for mortgage interest.

I want to move on to a couple of other issues. The hon. Member for Lanark and Hamilton East mentioned vulnerable recipients. We have taken particular care over those who are vulnerable and those who might not have the mental capacity to make financial decisions on their own. In those cases, the timeframe for execution, resolution and transition has been significantly extended. We are working with people either who we know are vulnerable or who were identified during the process as vulnerable to ensure that they have an appointed financial adviser, deputy or whatever it might be to make those financial decisions for them. That process is much longer; we are able to extend it to be pretty much as long as they need to make the position clear.

The hon. Lady raised a particular constituency case. I urge her to reassure her constituents that the new scheme is designed to maintain them in their home. On a day-to-day basis they will see absolutely no change whatsoever. They can stay in that home for as long as they like—for the rest of their natural life. The only change for them is if they sell that house or it is inherited by someone following their death and there is any equity in the house, the accumulated loan will be recovered from the proceeds. If there is no equity, we write the loan off. Do not forget that it is a very low-cost loan: the interest we charge is the same as that charged to the Government on their debt. It is in statute that it is a low-rate loan. We recognise that this is a disruption and change for people, but as we take the scheme forward we will try to make it as painless as possible.

We expect that a number of people will decide not to take the loan but to try to go it on their own, making their own mortgage payments. We are hearing anecdotally that people are either managing to make the rest of their mortgage payments or turning to family for assistance. However, if in three or four months’ time they do not think it is manageable, they think they have got themselves into trouble or they are in arrears on their mortgage because they have not been able to make payments, it is open to them to come back to us and reapply for SMI. If they are in trouble, we will be perfectly willing to backdate that to the date of change for them, to 6 or 7 April, to clear their arrears and ensure that we do not put anyone in a difficult position.

I stress that this change is about increasing sustainability and fairness, balancing the interests of the taxpayer against those of someone who is in extremis and needs assistance but nevertheless is in ownership of what could be a very valuable capital asset. In other parts of the benefit system, we do not necessarily allow people to accumulate capital assets. If someone applies for housing benefit, we look at their assets and if they have between £6,000 and £16,000 in cash in the bank, whatever it is that affects it. SMI is specifically about protecting people’s homes and ensuring that they are maintained in those homes for the long term.

[Angela Crawley]

Does the Minister accept that through housing benefit most people forced into the private rented sector are paying someone else’s mortgage? Is it not a tad hypocritical to say that someone in hardship or who will not otherwise be able to work again should not have their mortgage paid when those in the private sector, often renting from private landlords, are paying mortgages through housing benefit?

[Kit Malthouse]

I do not accept the equation the hon. Lady is creating between the two. Those on housing benefit are being supported by us with a legally enforceable rental liability. It might be to a private landlord, a housing association or a council—who knows? They have a rental liability and we want to maintain them in their home, so we will support them in that through housing benefit.

Through SMI, if someone gets into extremis, we want to maintain them in their home and support them in their mortgage, subject to capital limits. All we are saying is that if someone stays on SMI for some time and therefore profit accumulates in their home, once they sell it some or all of that very low-interest, low-cost loan should be recovered so we can recycle that into support for other people in search of housing, in need of support and housing benefit or, indeed, in need of SMI. That seems only fair and reasonable.

We reckon that the overall saving for the taxpayer will be £150 million, plus or minus—we will see where we get to. Overall, in fairness, given how the housing market has changed and that SMI was only ever meant to be a temporary support—only for us to find people who have been on it for decades, and about half the people on SMI are pensioners, so there is likely to be significant equity locked into the property being supported—it seems reasonable that, when that house is sold, the taxpayer should recover some or all of the money advanced to maintain that person in their home.

Critical for us is that the scheme achieves exactly the same objective as the old benefit payments. People who need support for their mortgage can rely on the state to support them while they get back on their feet, or whatever it might be, and maintain them in their home. The hon. Lady’s constituent can be reassured that SMI should not change their status at all. If they take the loan, we will do our best to support them to stay in their home for the foreseeable future.

Question put and agreed to.