Mortgage benefits may evade the axe

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The Government is set to back away from imposing tough new cuts in mortgage interest benefits for almost two million "vulnerable" people if they become unemployed.

Those likely to escape the changes introduced by the Department of Social Security are those receiving invalidity benefits and some carers looking after elderly or ill relatives.

Exemptions now being considered reflect a pledge by Peter Lilley, the Minister for Social Security, not to penalise those least able to obtain insurance to protect themselves against sickness or redundancy.

Those affected would not face mortgage interest payment restrictions should they lose their jobs. For them and people over retirement age, the status quo would apply should they buy a new property.

At present, borrowers who become unemployed qualify for 50 per cent of their mortgage interest for the first 16 weeks of a claim. Thereafter, full interest is paid.

New borrowers after October will not have the interest paid on their mortgages for nine months. Existing borrowers will not be paid for the first two months and will only receive 50 per cent of their mortgage interest for a further four months. Full interest becomes payable thereafter.

Mr Lilley has argued that individuals should be far more prepared to insure themselves against sickness or redundancy rather than rely on the state.

The DSS's proposals, due to be formally announced early next month, have been fiercely criticised by mortgage lenders and other campaigners. They have argued that mortgage arrears and repossessions will rise as a result of these changes, which will also deal another blow to an already ailing housing market.