Welfare Reform Bill

My Lords, this is a probing amendment that concerns mortgage interest payments and I am indebted to Shelter for its briefing on it. Clause 11 allows the Secretary of State to determine by regulations how the housing element of the universal credit will be calculated. Obviously, that can include support for homeowners’ mortgage interest as well as housing benefit. SMI is a benefit claimed by nearly 250,000 vulnerable homeowners. It pays towards their mortgage interest and goes straight into their mortgage accounts, helping them to avoid arrears and repossession. At the moment it can be claimed by struggling homeowners who are in receipt of income-based jobseeker’s allowance, state pension credit or income support. SMI claimants largely include vulnerable and low-income homeowners who are unable to make ends meet in old age or due to job loss, disability or the cost of lone parenting. The majority of SMI claimants, some 117,000, are over 60 and in receipt of pension credit; 77,000 claimants, including lone parents and disabled people, receive SMI because they claim income support; and 31,000 claimants are unemployed and claim jobseeker’s allowance. SMI is a cost-effective way of helping borrowers to avoid arrears and stay in their homes. It is important that any Government do all they can to help people avoid repossession, with all the knock-on social and financial costs that this can generate. Figures from DCLG estimate that repossessing the home of a vulnerable household can lead to housing benefit costs alone of £16,000 per case, without taking account of the local authority time and expense in processing a homelessness application, or any other support that may be needed. That could be as high as £34,000 in some cases, according to the New Economics Foundation. The latest figures from the Council of Mortgage Lenders show that there were 7,900 repossessions in the fourth quarter of 2010, which represents a welcome fall. However, many homeowners are struggling and will encounter difficulties when interest rates go up. Recent CML research revealed that one in four mortgage holders is not aware that interest rates are at an historic low. Sadly, those on variable or tracker mortgages will experience a huge shock once rates inevitably go up. Recent research by Shelter showed that the number of homeowners struggling to make their mortgage payments has risen by 78 per cent in a year, while the number of people using credit cards to help pay their rent or mortgage has increased by 50 per cent. With so many homeowners already living on a knife edge, any increase in interest rates will seriously threaten their ability to keep hold of their income. In 2008, in response to rising mortgage arrears, the previous Labour Government introduced a temporary freeze on the interest rate at which SMI is paid, at 6.08 per cent. They also reduced the waiting time for new claimants to receive payments from 39 weeks to 13 weeks and allowed new claimants to claim on up to £200,000 worth of mortgage, instead of £100,000. However, a time limit of two years for claiming SMI was also introduced for JSA claimants, and the first group of claimants reached their two-year limit in January this year. Housing advisers are already seeing people whose time has run out, who can no longer claim SMI and who are struggling to keep up with their mortgage payments. In the June 2010 Budget, the first of the coalition Government, the Government announced that the rate by which the amount of SMI is calculated will be set at the Bank of England average mortgage interest rate, currently 3.63 per cent, rather than the 6.08 per cent rate at which it had been temporarily frozen by the previous Government. In the March 2011 Budget, the Chancellor said that the Government would be keeping the 13-week waiting time period and £200,000 capital limit until January 2013. The question therefore is: how will this all be dealt with in the world of the universal credit? Shelter contends that support for homeowners should continue to be provided as part of the universal credit. It believes that homeowners should be entitled to claim an amount equivalent to the full rate of mortgage interest that they are paying, rather than the average mortgage interest rate. It says that that is because many homeowners are stuck on fixed-rate mortgages that are higher—in some cases, far higher—than the average mortgage interest rate and are unable to meet the shortfall. One principle underpinning the universal credit is the move towards a more responsive real-time benefits system that better interacts with claimants’ real-life situations. A shift towards paying SMI at actual interest rates would of course be entirely consistent with that. Shelter also thinks that, under the new system, SMI should continue to be paid directly to lenders, as it is at present. I stress that this is a probing amendment. It was pressed in the other place and I should be grateful for an update from the Minister. I beg to move.