Home help adds to borrowers' burden: Andrew Bibby on a troublesome scheme to reduce repossessions
Sunday 20 December 1992
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.
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