Benefit changes will lead to more homes being repossessed
The number of houses being repossessed and the number of families with mortgage arrears both fell again in September, but experts believe that changes to the rules on benefit payments for homeowners will inevitably lead to these figures rising again.
On Thursday the Council of Mortgage Lenders published their figures for mortgage possessions and arrears for the third quarter (July – September). These showed:
- 8,900 properties taken into possession;
o 5 per cent lower than the figure for the second quarter, and
o 27 per cent lower than the figure for the third quarter of 2009.
- 176,100 mortgages had arrears of 2.5% or more of the outstanding balance;
o 1.2 per cent lower than the figure for the previous quarter, and
o 13.6 per cent lower than the figure for the third quarter of 2009.
Low interest rates have meant that the number of people losing their homes – or at risk of doing so – has so far been lower than in previous recessions. But there was less positive news on the same day from the Ministry of Justice, which published its figures on repossessions in the courts. These showed a 5 per cent increase from the previous quarter in the number of repossession orders being made (but still 28 per cent lower than the third quarter of 2009).
This may be an indicator that the number of repossessions is about to rise again and, as Shelter pointed out, the annual level for repossessions is “still the highest we have seen since the mid 1990s and the number of people in more than 12 months of arrears has more than trebled in the last two years.” Shelter also chose Thursday to publish a YouGov survey showing that 17.8 per cent of homeowners were keeping up with their mortgage payments, but it was “a constant struggle”.
This news highlights the government’s changes to the way the benefit system helps people with mortages who are in difficulties. The system is known as Support for Mortgage Interest (SMI) and it helps people who receive means-tested benefits by helping them to pay the interest on their mortgages (but not to pay off the capital.) In 2008, the last government announced that, to help homeowners cope with the recession, SMI would assume that they faced an interest rate of 6.08 per cent, and this would be frozen till at least December 2010. In the Budget , the Chancellor announced that, from October 2010, this would be cut to the Bank of England’s calculation of the average mortgage rate – currently 3.67 per cent.
A number of experts are worried that this change will increase the numbers facing arrears and repossessions. As people who receive SMI have low incomes, a higher than average proportion have poor credit histories and are therefore likely to face interest rates above the BoE average. The average interest rate includes people who have been able to switch to mortgage providers who charge lower rates, but people who get SMI are usually unable to do this. Disability organisations have reported that the change will hit about 5,000 people with severe impairments who use SMI to pay for specialist mortgages on shared ownership homes; disabled people will in any case be disadvantaged as they are likely to face higher interest rates because of their lower earning potential.
Parliamentary Questions by Caroline Lucas MP have revealed that 227,000 people receive SMI, over half of whom are pensioners. Just half of them will have 100 per cent of their mortgage interest covered by the new scheme – 40 per cent will have to find a fifth or more from somewhere else. The Guardian reports that debt and housing advise agencies are already advising claimants who cannot make up the difference and risk losing their homes.
It is very hard not to agree with the Council of Mortgage Lenders:
But, with the economic outlook uncertain and in the wake of the 40% cut on 1 October 2010 in the rate at which support for mortgage interest is paid to the minority of households eligible for it, the CML believes support for borrowers in difficulty must be sustained throughout 2011 and beyond.