Home rescue plan backfires: A scheme to halt repossessions is causing arrears. Andrew Bibby reports

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The Independent Online
A SCHEME intended to help prevent house repossessions is leaving some home-owners at greater risk of court action.

Arrangements for the Department of Social Security's Benefits Agency to pay mortgage interest direct to lenders for borrowers on income support were introduced from May last year. Advice workers report that, as a result, some home-owners have developed substantial mortgage arrears.

The experience of Marylyn West, a mother of three young children who was widowed five years ago, is typical. Mrs West has a pounds 40,000 mortgage with Mortgages plc, a centralised lender, on her three-bedroomed house in east London. Although she has been surviving on state benefits since the death of her husband, until last summer she had been regularly making her mortgage payments.

In June, however, the Benefits Agency told her it was transferring her to the new 'mortgage direct' system, and in the process reducing the income support element of her benefit (which also includes a widow's pension) to a notional 10p. Less than nine months later, she says she received a letter from her mortgage company telling her she had arrears of over pounds 2,000. 'I've got a summons to appear in court in July.'

After being contacted by the Independent, Mortgages plc says that Mrs West's court hearing will be adjourned while the company tries to sort out payments with the DSS.

According to Beverley Price, head of customer care, the firm received no payments from the DSS on Mrs West's behalf from June to September last year. The money for this period finally arrived after intervention by the Citizens Advice Bureau in March this year. DSS payments since January also appear to have been held up. The mortgage company says it has not been told why payments have been withheld.

A further problem in Mrs West's case is that her income support level is not sufficient to meet the mortgage interest. She is responsible for topping up the monthly payments, though she says this was never made clear to her when mortgage direct began and she is still not sure quite how she needs to pay.

Not surprisingly, many home- owners assume that once the Benefits Agency begins direct payments they no longer need to worry about the mortgage. In fact, borrowers do need to monitor closely what is happening. They also need to be aware that some parts of the mortgage payment, such as insurance costs, are not payable from income support.

The National Association of Citizens Advice Bureaux (Nacab) says that problems with mortgage interest payments make up the largest category of income support cases referred to it by local bureaux.

Janet Allbeson of Nacab says that both the Benefits Agency and the lenders are having administrative problems. Confusingly, the DSS is paying mortgage interest 13 times a year in arrears, failing to tie in with mortgage lenders' own calendar- monthly charging.

When mortgage direct was first proposed in late 1991, lenders undertook not to push for repossession when borrowers were on the scheme.

'Lenders are still going for possession, particularly when they are unhappy about the level of previous arrears or become irritated at the slowness of the Benefits Agency,' Ms Allbeson says. 'There has got to be some kind of concerted attempt to sort out the problems.'

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