Welfare Reform and Work Bill — House of Lords, 2015-12-21
Topic: Housing
David Freud (Conservative, Centre-right): My Lords, I start by responding to Amendment 103A, which would keep the waiting period at 13 weeks. The background to this is well known. Claimants receiving income-related benefits may claim help towards the cost of their mortgage interest payments. Apart from those receiving state pension credit, claimants must serve a waiting period before entitlement to help with mortgage interest begins. Before 2009, the waiting period for the majority of working-age claimants was 39 weeks. In January 2009, temporary arrangements were introduced that reduced this period to 13 weeks. This was to provide additional protection to those who lost their jobs during the recession. At the same time, the maximum value of mortgage for which support is available, known as the capital limit, was doubled to £200,000. In the summer Budget, it was announced that from April 2016 the waiting period will return to the pre-recession length of 39 weeks although the capital limit of £200,000 will be maintained This amendment would remove the current broad powers in the Bill that allow the waiting period for support for mortgage interest to be set out in regulations, replacing them with a narrowly defined 13-week waiting period, but I suspect it is a probing amendment. We wish to retain the ability to act quickly in different circumstances, and putting this in primary legislation would prevent that Let me be clear about why we help owner-occupiers with mortgage interest payments. The purpose is not to secure their asset or to reduce any outstanding payments owed to lenders. The purpose is simply to mitigate the risk of repossession. The CML now says that it believes the 39-week waiting period will drive repossessions, but it is unable to quantify the number of repossessions. We will work with the CML to assess any such impacts in terms of repossessions, but we do not believe that they will be significant, particularly at the current level of house prices. There is no evidence to suggest that lenders will do anything other than exercise the same degree of forbearance that they did prior to 2009 when the 39-week waiting period was last applied, particularly as we are maintaining the higher capital limit Amendment 104 seeks to change the way in which SMI loans are recovered from the equity in the claimant’s home. The intention is that a charge registered by a local authority to reclaim deferred payments for social care would always take precedence over a charge registered by the DWP to recover an SMI loan. As the Bill stands, the Government can require that a loan be secured by a charge over the claimant’s property. Under provisions in the Land Registration Act 2002, charges are recovered in the order in which they are registered. If the SMI charge was registered on the property before any deferred payment arrangement, it will have prior claim to any equity when the property is sold. The legal charge will therefore be subordinate to any existing charges on the property, including the mortgage. That answers one of the questions asked by the noble Baroness, Lady Sherlock We envisage that advice would normally be given via a telephone conversation and would cover the following areas: the claimant’s financial position now and in future, their understanding of the terms of the loan, and encouragement for them to engage with any heirs they might have. The delivery of that financial advice will be outsourced to a third-party provider Section 34 of the Care Act 2014 obliges local authorities, in prescribed circumstances, to offer DPAs. The intention is that people should not be forced to sell their home in their lifetime to pay for their care. If there is no equity in the property—a subject raised by the noble Baroness, Lady Sherlock—the family would be able to apply for a funeral payment from the Social Fund I pick up on the question asked by my noble friend Lord Young. Local authorities are not required to make such an offer where there is a pre-existing charge on the property. Recipients of SMI loans by definition have a pre-existing charge—their mortgage—so in such cases there is no obligation to offer deferred payments. The registering of a charge in respect of an SMI loan does not, therefore, directly interfere with the policy intent of the Care Act The noble Baroness, Lady Manzoor, asked about the types of property on which it is possible to secure a loan. Charges can be secured on the claimant’s equity share in shared ownership and on leasehold properties I turn back to local authority provision. Local authorities are not precluded from offering DPAs where there is an existing charge so long as they are satisfied that there is adequate security. This means that they may still consider offering deferred payments if, after taking account of the outstanding mortgage, the remaining equity would be sufficient to cover an individual’s likely care costs. It is arguable that in some circumstances the existence of a charge in respect of an SMI may make authorities less inclined to agree to defer payments in such cases. However, it is important to note that deferred payments are available only where the person enters residential care. In such circumstances, payments of income-related benefits cease, including payments of SMI. As the claimant will have no means to meet their mortgage payments, it is probable that the property would have to be sold anyway. I should be clear that the position as I have just described it is not a consequence of changing SMI into a loan; it is inherent in the current system Amendment 104A is intended to exempt disabled claimants from the provision that introduces SMI loans and allow them to continue to receive this help in the form of a non-recoverable benefit. The purpose of providing SMI is to protect owner-occupiers from the risk of repossession and allow them to remain in their homes. In almost all cases, these payments are sent direct to lenders rather than to the claimant. When Clause 16 comes into effect, the level of support will remain the same as now—the point made by my noble friend Lord Young—and payments will continue to be sent direct to lenders. Neither lenders nor claimants will see any difference in the way the system works, so exempting any particular group would not have any impact on the level of protection they were afforded. The difference is that under the loans scheme the payments will be recoverable, but recovery will not be sought until the property is sold. So the day-to-day income of disabled people will not be affected SMI supports individuals in the accrual of a significant asset. Many taxpayers who are providing that support cannot afford to buy their own homes. It is only fair that this support is recouped where equity is available when the property is sold. I do not believe there is a sustainable argument that people with disabilities should be exempted from refunding some of the equity that the taxpayer helped them to accrue, while other people supported during periods of financial need should not The amendment is defective, in that it does not make a consequential amendment that would continue existing SMI entitlement for the group that the amendment is designed to protect—but let us leave technical issues aside Lastly, Amendment 104AZA would prevent the Government from changing support for mortgage interest into a loan for those on state pension credit, and allow them to continue to receive help with their mortgage interest as a benefit rather than a loan indefinitely. This would be unsustainable and unfair on the taxpayer. As I have previously said, it is not right that taxpayers, many of whom cannot afford to buy their own home, are subsidising the acquisition of a substantial asset. Pensioners will have access to the same level of support for mortgage interest payments as the current system provides, and the Government will not recover the loan until the property is sold. With pension credit claimants, it is most likely that this will be on their death and therefore will impact not them but the beneficiaries of their will Pensioners will have the same access to support that the current system provides, and the Government will seek to recover the debt only up to the level of available equity when the property is sold. In response to questions from the noble Baronesses, Lady Sherlock and Lady Manzoor, I say that any outstanding debt at that point will be written off. Owner-occupation involves the acquisition of a potentially valuable asset that often increases in value over time. It is right and sustainable that the taxpayer reclaims their contribution to this asset The amendment would also introduce a waiting period for pensioners before they could receive help with their mortgage interest payments. There is currently no waiting period for help with mortgage interest for pensioner claimants, and it is not the Government’s intention to introduce one I cannot go into great detail on the questions from the noble Baroness, Lady Hollis, but to the extent that more support will be required for people, this is a far more sustainable way for the state to provide it than through grants. We are still considering our response to the DPRRC line on whether the procedure is negative or affirmative. With these explanations, I urge noble Lords not to press their amendments.