From the TUC

Benefit changes will lead to more homes being repossessed

14 Nov 2010, by in Society & Welfare

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. 

4 Responses to Benefit changes will lead to more homes being repossessed

  1. Tweets that mention Benefit changes will lead to more homes being repossessed | ToUChstone blog: A public policy blog from the TUC —
    Nov 14th 2010, 1:26 am

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  2. Alexis
    Nov 14th 2010, 8:17 am

    This is very true. I am one of those affected. Pressure should be brought to bear on the banks to accept the level of SMI received in benefit. They are, after all, receiving something.

    This can only go further to create further cost to the government (in terms of having to deal with more homeless people – and remember one repossession does not necessarily equal one person, but several including the vulnerable – but also the health, mental and family costs too. Added to the people who will be evicted as a result of the decreases in HB will result, sadly, in unscrupulous landlords housing people in unsafe environments and the creation of ghettos.

    People who have lost their jobs and are looking will find it difficult to concentrate on a jobsearch. No fixed address means difficulties in communicating with potential employers. Job search is a job in itself.

    If the politicians showed a similar knowledge with regard to this subject as they did in knowing the difference between the national debt and the deficit and how much the national debt is, I’d be very, very worried.

    Quite a few people who have been. There are even ways in which the government could reduce their SMI payments, without any real cost and for people to keep their homes. Of course, no-one is listening to me either because to do that would make common sense and I’m very surprised (but not) that the media hasn’t picked up on SMI. Maybe they didn’t know about it either, because the way that it was brought in was very sneakily. In fact, some of the letters went out after 1 October and not everyone keeps a beady eye on the news. The coverage it got back in June was hidden in amongst the proposed HB costs and a lot of people didn’t even know what SMI is.


  3. Hindle-a
    Nov 14th 2010, 5:43 pm

    Alexis-I have a feeling that the Government is very happy about people and the media concentrating on proposals re.JSA and Housing Benefit and as you say sneaking in actions like this and the removal of mobility component of DLA to people in residential homes -Osborne did mention this but presented it as a tidying-up exercise-they rely on the ignorance and prejudices of the general public issue proposals that engender great discussions as a smokescreen to divert attention from rather petty,nasty changes involving littlle savings to them but a great deal to current receivers.

  4. Tokyo Gaijin
    Nov 15th 2010, 4:32 am

    The way you use reports and data to distort reality is astonishing. How you take positive news and make it sound negative is breathtaking.
    How about mentioning that the report from the CML states the Q3 decrease is the fourth consecutive quarterly decline or that the repossessions represent 0.08% of mortgages or that the number of mortgages with arrears of 2.5% represents 1.55% of all mortgages ?
    I also wonder what statistical gymnastics Shelter comes up with to say repossessions are running at the highest annual level seen since the mid 1990’s. According to CML there were 46,000 repossessions in 2009, in the first three quarters of this year there have been 28,400 and the trend, as noted above, is downward.
    Statements such as “the number of people in more than 12 months of arrears has more than trebled in the last two years” which don’t actually show any data should be treated with suspicion, but you unquestioningly quote them.
    I’m pretty sure that like me most people who borrowed to buy things including houses found it tough at times to keep up with the payments so the “fact” that 17.8% pay their mortgages but that it’s a struggle is hardly worthy of comment.
    Your suggestion that because recipients of SMI have poor credit histories, at least some of which they must have brought on themselves, and should therefore get SMI support at a higher than average market rate punishes those people paying taxes to support such a scheme.
    As a nation I believe we want to provide support for those genuinely in need but these types of scaremongering attitudes and blogs turn more people off than on.