Welfare Reform and Work Bill (Second sitting)

Shailesh Vara Excerpts

Thursday 10th September 2015 Public Bill Committees

[Kate Green]

Q 6 May I ask one last question? It has been suggested that some people who do not return to work—perhaps people who are on long-term sickness or disability benefits and do not become well enough to return to work—will never make repayments of the loan as a result of returning to employment, but will be able to do so when the house is sold. For some of those people, the sale is likely to take place at the point when they become so disabled that they need to make adaptations and perhaps downsize to release equity to do so. How will the market respond and what are the risks of those people being unable to fund a move to more suitable supportive housing?

Paul Smee: I think that any lender would want to talk to the borrower about the circumstances in which they found themselves. There might be ways, using conventional lending instruments of one form or another, to find a way through. Whether the Government at that point decide to exercise their second charge and in effect demand repayment of the loan would be up to them, but I believe the lending industry would want to work with the borrower to come to some sort of acceptable outcome.

[The Parliamentary Under-Secretary of State for Work and Pensions (Mr Shailesh Vara)]

Q 7 Welcome, gentlemen. It would be the Government’s intention to have comprehensive advice for claimants who are in the position of having interest that is to be converted into a loan—by way of advice on the accrual of interest and on the impact of the second charge. It could be a third or fourth charge depending on how many debts they have. It is our intention to give comprehensive advice. Is there anything that we should be mindful of when considering the advice to give? What would you emphasise that we should make clear to claimants?

Paul Smee: The first point I would make is that the advice that you will be giving will not be regulated advice within the regulatory framework to which my lenders are subject.

[Mr Vara]

I appreciate that. This is just to inform them of the consequences of what we are doing.

Paul Smee: Yes, and lenders would be constrained if that was the case so we accept that. In the giving of advice, people should understand where the Government are coming from in being able to claim repayment of the loan and where they stand with their mortgage lender—they should understand that the Government do not take the place of the mortgage lender as a first charge holder. There is some basic understanding around the framework.

There will then be a need to explore whether it is in the financial interests of a particular individual, particularly at the end of a waiting period, to claim support for mortgage interest. It will be important to ensure that the provider of that advice has the ability to walk a borrower through the available options so that they come to the best solution in their circumstances.

Paul Broadhead: It is ensuring that the advice is available in a way that people want to receive it and can understand it. I agree with my colleague that this is not regulated advice and is more about guidance and understanding the impact of taking what was a benefit and is now a loan. I would equate it more to the money advice out there at the moment if somebody is in financial difficulty. There are channels that do that face to face, online and over the telephone. A study of how that market works currently would be helpful in finalising the channels for providing that advice to consumers. One thing I would say is that 167,000 people are in receipt of this as a benefit now. That is a big group of people to get through advice between now and April 2018. Care needs to be taken there.

[Mr Vara]

I am happy with that. For the sake of good order, I refer the Committee to the Register of Members’ Financial Interests.

[Hannah Bardell (Livingston) (SNP)]

Q 8 Thank you, gentlemen, for joining us. Why should homeowners be forced into extra debt when the renting sector has access to housing benefit? That seems somewhat iniquitous given that many of those people are already struggling financially and are on benefits. Will the measure mean that people on low incomes and in insecure jobs will be disadvantaged or excluded from getting on to the housing ladder as a result of the change?

Paul Smee: On the first point, I think that the rationale is that the individual concerned has an asset, and that that asset is realisable and, at the moment certainly, appreciating in value. I can understand when, at a time when policy choices are being made, the argument is that, given the existence of that asset, it is better to have some claim back of any money that is paid out.

When it comes to getting on the housing ladder, particular checks are already in place to ensure that people do not over-borrow and get into financial problems. That is enforced by the regulators of the financial services system. I do not believe that the change in SMI proposals will in any way add to the protections or inhibitions that the current regulatory system imposes.

Paul Broadhead: I agree with what Paul just said. The only thing I would add is that, in a case where it is not repaid from the sale of an asset—either on death, on the sale of the property or whatever it may be—and someone moves back into work, it is vital that they are not put under undue pressure, having been in financial difficulty and got themselves back on their feet with their mortgage payment, to make contributions that are perhaps not affordable in their circumstances at that time. Because we are in primary legislation mode, the detail of that is not yet clear, but it is an important consideration for later down the line.