Home help adds to borrowers' burden: Andrew Bibby on a troublesome scheme to reduce repossessions

LAST CHRISTMAS, the Government met the mortgage lenders in a well-publicised initiative aimed at reducing the number of home repossessions. Included in the deal was an agreement that the mortgage interest component being paid to those on income support would be given direct to the lender, rather than to the claimant.

But what seemed a simple and straightforward arrangement which could help both lenders and borrowers has become a bureaucratic nightmare for some homeowners.

Evidence is emerging that the direct payment of mortgage interest to lenders, which has been phased in since May this year, can actually increase the problem of arrears faced by borrowers - even where the Department of Social Security Benefits Agency is paying the mortgage interest in full.

According to the National Association of Citizens Advice Bureaux (Nacab), mortgage direct payment cases have in recent months become the most common benefit problem.

When the system was announced, the Council of Mortgage Lenders maintained that its members would not choose to repossess properties when mortgage interest payments were being covered by Income Support. However, the effectiveness of this facet of the agreement is also being called into question. 'A fundamental problem which isn't being resolved is that lenders are still going for repossession,' said Nacab's Janet Allbeson.

Raymond and Christine Cox from Weston-super-Mare have been receiving Income Support since Mr Cox's work as a lift engineer dried up last December, but they are facing a repossession court hearing in the new year brought by their lender, the Leeds Permanent building society.

'I don't know how they've worked it out. You think the DSS is dealing with the mortgage company,' said Mrs Cox. She admits they have earlier arrears still outstanding, but adds: 'Our mortgage was only pounds 25,000 and the house was worth pounds 60,000, so we own a lot more of the equity than the Leeds do.'

The society says the possession order is simply a safeguard against future default. 'We wouldn't be rushing into pursuing eviction at this point, but the possession order helps in the future if the arrangement breaks down,' says a spokesman, who confirms that the Leeds is currently receiving Benefits Agency payments on the behalf of the Coxes.

During the first 16 weeks of a new Income Support claim, the DSS only pays half the mortgage interest and payment continues to be made to the claimant; direct payment to the lender normally begins at the end of this period. Thereafter, Income Support should cover the full cost of mortgage interest, though there is no assistance with additional capital repayment or endowment policy costs, or any mortgage-linked insurance premiums.

Any attempt to combine the notoriously complex benefits system with the sometimes equally obscure method for calculating mortgage interest was bound to lead to a great deal of creaking and grinding.

Since it was the mortgage industry that asked the Government for the direct payment concession, many lenders are inclined to dismiss present problems as teething troubles. Nevertheless, the Benefits Agency has decided to make its payments to mortgage lenders 13 times a year in arrears. This means that the money will almost certainly arrive later than the set monthly mortgage payment date. In other words, the system already has a built-in tendency to increase at least the notional size of borrowers' arrears.

There are other difficulties emerging. The Benefits Agency is entitled to reduce the total Income Support payable on interest for remortgages on the grounds that the original loan may not have been entirely for house purchase or approved repairs. ('Replacement windows and extensions are always difficult areas,' said one Citizens Advice Bureau worker.) Income Support levels are also reduced if a household includes a non-dependant (a grown-up son or daughter, for example) assumed to be contributing to the mortgage, or in certain cases where the housing costs are considered 'excessive'.

These rules have not changed since the introduction of direct payments to lenders. What is different now, however, is that homeowners must work out whether they need to top up the automatic mortgage payment to cover these deductions. The cost of any insurance premiums due with the mortgage must also be paid separately.

Even if claimants are able to make these top-up payments, advice workers say it is extremely difficult for them to find out how much they should pay. 'The letter the Benefits Agency sends out to claimants to explain the direct payment arrangements is very unclear,' said Ms Allbeson of Nacab.

The result is that homeowners who assume all their mortgage expenses are being met directly may in fact be building up further arrears.

One further snag has arisen with the annual review system of mortgage payments - where borrowers pay a fixed sum for 12 months, revised to allow for previous over- or under- payments.

The annual review concept is simple, but it appears to be causing considerable problems among local offices of the Benefits Agency. Several lenders, including the Halifax Building Society, have removed all borrowers on Income Support from this method of payment.

Any borrowers receiving Income Support who remain subject to annual review should be aware that they are responsible for notifying the DSS every time interest rates change, even if their monthly mortgage payment is unaffected.

(Photograph omitted)

Voices
A Russian hunter at the Medved bear-hunting lodge in Siberia
Save the tigerWildlife charities turn to those who kill animals to help save them
News
Davis says: 'My career has been about filling a niche - there were fewer short actors and fewer roles – but now I'm being offered all kinds of things'
PeopleWarwick Davis on Ricky Gervais, Harry Potter and his perfect role
News
i100
Sport
Frank Lampard will pass Billy Wright and equal Bobby Charton’s caps tally of 106 caps against
sportFormer Chelsea midfielder in Etihad stopgap before New York contract
PROMOTED VIDEO
Arts and Entertainment
The first film introduced Daniel Radcliffe to our screens, pictured here as he prepares to board the train to Hogwarts for the first time.
booksHow reading Harry Potter helps children grow up to be gay-friendly
Arts and Entertainment
A scene from Aladdin is performed at the Tony Awards in New York in June
theatreBrit producer Lythgoe makes kids' musical comedy a Los Angeles hit
Sport
Usain Bolt of Jamaica smiles and shakes hands with a competitor after Jamaica won their first heat in the men's 4x100m relay
sport
News
Chancellor George Osborne, along with the Prime Minister, have been 'complacently claiming the economy is now fixed', according to shadow Chancellor Ed Balls
i100... which is awkward, because he is their boss, after all
Life and Style
A small bag of the drug Ecstasy
Health
Life and Style
Floral-print swim shorts, £26, by Topman, topman.com; sunglasses, £215, by Paul Smith, mpaulsmith.co.uk
FashionBag yourself the perfect pair
News
news
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
Netherlands' goalkeeper Tim Krul fails to make a save from Costa Rica's midfielder Celso Borges during a penalty shoot-out in the quarter-final between Netherlands and Costa Rica during the 2014 FIFA World Cup
newsGoalkeepers suffer from 'gambler’s fallacy' during shoot-outs
News
people
Arts and Entertainment
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmReview: A week late, Secret Cinema arrives as interactive screening goes Back to the Future
Extras
indybest
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Financial Analyst - Forecasting - Yorkshire

£300 - £350 per day: Orgtel: Financial Analyst, Forecasting, Halifax, Banking,...

Business Architect - Bristol - £500 per day

£500 per day: Orgtel: Business Architect - Banking - Bristol - £500 per day A...

Regulatory Reporting-MI-Bank-Cardiff-£300/day

£200 - £500 per day + competitive: Orgtel: I am currently working on a large p...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Day In a Page

Save the Tiger: Meet the hunters tasked with protecting Russia's rare Amur tiger

Hunters protect Russia's rare Amur tiger

In an unusual move, wildlife charities have enlisted those who kill animals to help save them. Oliver Poole travels to Siberia to investigate
Transfers: How has your club fared in summer sales?

How has your club fared in summer sales?

Who have bagged the bargain buys and who have landed the giant turkeys
The best swim shorts for men: Bag yourself the perfect pair and make a splash this summer

The best swim shorts for men

Bag yourself the perfect pair and make a splash this summer
Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

The dining car makes a comeback

Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

Gallery rage

How are institutions tackling the discomfort of overcrowding this summer?
Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

Eye on the prize

Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

Women's rugby

Tamara Taylor adds fuel to the ire in quest to land World Cup
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable