The Department of Work and Pensions (DWP) has come under fire for not providing enough support to homeowners struggling to pay their mortgage after a job loss. A former pension minister has criticised the DWP, saying people are likely to build up significant debt before they receive any help.
Sir Steve Webb, former Minister of State for Pensions, said the number of people receiving help with their mortgage payments had collapsed since a 2018 reform. The number of people receiving help from the scheme has also drastically decreased in the four years since its introduction.
The former Liberal Democrat MP said the number of people receiving help with mortgage payments had collapsed. With mortgage payments generally increasing, alongside other household bills, there are fears many people will not be able to keep up with the payments.
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In April 2018, a benefits system of help for homeowners was replaced with a system of repayable loans, secured against the homeowners property. People with a mortgage can claim for help with interest rates if they are on a qualifying benefit.
Mr Webb highlighted figures from May 2022, which showed 12,845 loans were in the process of being paid. In March 2018, before the introduction of the loan-based scheme, 90,000 received help with mortgage repayments - a decade before, the amount of people receiving help totalled around 200,000.
He added that the current system means some people will build up significant arrears for months whilst they are out of work. The Department of Work and Pensions (DWP) will contribute to the interest on the first £200,000 of the outstanding mortgage - or the first £100,000 for new claims from anyone above pension age.
The DWP will also pay interest rates based on a standard rate, applied to all claimants, rather than based on their actual interest rates. Those with large outstanding mortgages - first time buyers, and those paying above average interest rates - could find that any help does not go far enough to cover their mortgage costs, warns Mr Webb.
Mr Webb said: “If a homeowner loses their job, the welfare safety net has largely been dismantled in recent years. In most cases no mortgage help is available for nine months, during which time large arrears could build up.”
“And even when help does start it may fall short of actual interest payments and has to be repaid with interest when the property is sold. Many working homebuyers may be completely unaware of the lack of support they will get from the state if they lose their job and may need to think hard now about how they would sustain their mortgage – and keep their home – if they were to lose their job. One thing is clear – they cannot depend on the Government to support them.”
A DWP spokesperson said: “We recognise people are struggling with rising prices, which is why we are protecting millions of the most vulnerable families with at least £1,200 of direct payments and saving households an average of £1,000 a year through our new energy price guarantee. If someone is having difficulty meeting their mortgage commitments, it is important they speak to their lender as they will have set processes in place to assist.”
“Under FCA (Financial Conduct Authority) guidance, the lending industry must consider a range of support options, including offering to make up the difference in interest payments.”
Those struggling with a mortgage repayments may be offered various options for help by their lender. Options may include part-payment plans, mortgage term extensions, temporarily transferring to an interest-only mortgage, or deferring interest due. The money owed may be added to the mortgage balance.
A spokesperson for trade association UK Finance said: “Lenders stand ready to help customers who might be struggling with their mortgage payments. There is a range of tailored support available, anyone who is concerned about their finances should contact their lender as soon as possible to discuss the options available to help.”
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