The Department for Work and Pensions (DWP) has released the latest figures surrounding a controversial benefit reform. They show that the changes made, affecting thousands of people, are turning into nothing short of a disaster for them.
The DWP: cutting again
Support for Mortgage Interest (SMI) used to be a welfare entitlement. It covered the interest payments on people’s mortgages, up to £200,000, when they were unable to work. Former chancellor George Osborne announced in 2015 that it was going to be stopped. Its scrapping came into full effect on 6 April this year.
Now, people can take out a SMI loan from the government. But there are catches to this. It will only pay a person’s mortgage interest up to a rate of 2.61%. Also, it being a loan, the claimant has to pay it back – with interest set at the government borrowing rate, which goes up and down.
As of 8 August, of the 105,000 people entitled to a SMI loan, less than 15% had taken one out. More worryingly, 58% of those entitled, or 61,000 people, had declined the DWP’s offer of a loan. And buried within a DWP impact assessment [pdf] is the added concern that the majority of claimants affected are disabled. It also disproportionately affects elderly people.
But there may be good reasons for the seemingly dire uptake of this latest DWP benefit reform. So The Canary discussed SMI loans with BENEFITS NEWS, which aims to promote the rights of welfare recipients and has also campaigned on the issues with SMI.
Adding more debt
It believes that there are numerous problems with the SMI loan. Not least that, by taking out the SMI loan, people are effectively having a second ‘charge’ (or loan) secured against their property. BENEFITS NEWS told The Canary:
With a second charge attached to the property, you can presume no lender will easily lend if [the] claimant wanted to remortgage to obtain a lower interest rate deal. Nor would a lender be likely to re-lend the same mortgage, should the claimant wish to ‘port’ it, i.e. to downsize or move home, because they would then fail the ‘affordability criteria’. It is already hard enough for benefit claimants, especially those who are unlikely to be able to work again, to actually get a mortgage. So we believe this government has worsened matters for them.
The likelihood of repossession could also be much higher… The Bank Of England has put interest rates up twice already. Yet the DWP is still only paying 2.61%. Also, because the SMI loan carries extra interest (based on the ‘gilt rate’ presently around 1.7%) – people will be adding the equivalent of what was a benefit but now with extra interest… on top of their mortgage debt…
Almost as if to add insult to injury, the risk surrounding the SMI loan will be hitting elderly and disabled people the most. But what’s more damning is the DWP knew this would happen over a year ago.
Disabled people: bearing the brunt
- 45% of SMI claimants were pension age, compared to just 4% of the mortgage holding population.
- 48% were also claiming Pension Credit.
- 38% were claiming Employment and Support Allowance (ESA).
- 74% of single claimants were disabled people.
- 80% of couple claimants had one or more disabled person in them.
The DWP even noted [pdf, p6] that these figures indicate:
the policy is likely to have a disproportionate impact on disabled people.
BENEFITS NEWS believes the DWP has breached the law. It told The Canary:
We are concerned that this policy change breaches Equality Act 2010, where being disabled is a protected group. The Act covers discrimination; specifically that a government or public sector department should not bring in new policies to the detriment of protected groups.
The DWP knew… the change would likely affect disabled people the most. But it went ahead anyway.
The DWP says…
The Canary asked the DWP for comment. It hadn’t responded at the time of publication. But it previously told the Guardian in relation to the introduction of the SMI loan:
This change continues to provide a safety net to help people stay in their homes and avoid repossession. Over time, someone’s house is likely to increase in value, so it’s reasonable that anyone who has received financial help towards their mortgage should be asked to pay that back if there is available equity when the property is sold.
Removing the safety net
Ultimately, BENEFITS NEWS believe the DWP’s SMI loan policy is dangerous. It told The Canary:
This affects a high-risk group consisting of very poorly, incapacitated, disabled, elderly, pensioners and people that cannot work… This government is removing their safety net. It is not acceptable.
This policy is causing severe distress and making people feel suicidal. With other benefit cuts and constant re-assessments leading to loss of monies, elderly and disabled people’s lives and homes could be lost.
A sting in the tail
But there’s a sting in the tail of the DWP’s SMI reform. In its own impact assessment, it estimated [pdf, p8] that:
3,000 working age… and 5,000 pension age… claimants will choose not to take a loan.
The actual figure went from 42,000 on 18 April to 61,000 on 8 August [xls, table_1]. So ultimately, the DWP once again attacked disabled people disproportionately. But it’s also achieved its desired affect: to save money while cutting the welfare state to the bone – all off the back of those that can least afford it.
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