Recent changes to support for mortgage interest (SMI) will drive income-poor people further into poverty. Last month government support in the social security system to help people pay their mortgages went from being a grant to a repayable loan. This is unfair.
Using loans to help address the needs of income-poor people is nothing new in the benefits system. Over the past 200 years in Britain there have been government powers to enable money to be loaned to income-poor people. Currently, for example, people claiming universal credit can receive an “advance” (essentially a loan) of their initial payment for “emergency household costs”. People being granted asylum can be given a refugee integration loan. These are repaid from subsequent benefit payments but, crucially, they are interest free. Even so, such loans indebt people who are often poorly positioned to repay them because benefit incomes are so low.
What makes loans of SMI different from these other examples is, first, the charging of interest (currently 1.5 percent), and, second, the arrangements for their recovery, which, ultimately, will be via the sale of the home upon which the claimant’s mortgage is secured.
Both these developments are new in social security policy. And both demonstrate the unfairness of the approach. Making SMI a loan was mainly justified on the ground that the previous system was “unfair to taxpayers”. The argument was that people on benefits could enjoy increases in the value of their homes paid for through public expenditure when many taxpayers were “struggling to service their own mortgages or cannot afford to become owner occupiers”. In other words, rather than helping poor people to pay their housing costs, SMI was held to be helping them buy an asset from which they would financially gain.
This argument, however, is problematic. First, as was pointed out by housing and homelessness charity Shelter, the government was not as concerned that the payment of tenants’ housing benefit was to the financial gain of private landlords. And, second, that since the selling off social housing under the Right to Buy scheme in the 1980s governments have developed many policies designed to encourage people to buy their own homes. These have been subsidised through public spending or foregone income, which primarily does not have be (re)paid to the government. As a consequence, it can be argued that it is the income-poorest people who are being treated unfairly compared with better off people.
This should not be surprising, for the idea of governments loaning the poorest people money is premised on two issues that are central to social security policy – that it should always encourage personal responsibility and be as cheap as possible. Loaning support for mortgage interest is seen as encouraging responsibility because it makes individuals support their housing-related costs through their “assets” (in this case their home). This means, first, that benefit recipients have become responsible for their own housing support, to be paid for by the sale of their home. And, second, because it is to be repaid with interest it will in the longer-term be as close to a self-financing form of social security as possible.
It would appear, however, that the costs of the scheme are being constrained by discouraging people from signing up to it. It was recently reported that only a minority (14 per cent) of the 90,000 eligible people had agreed to the new system, meaning that the majority will have to make their mortgage payments from another source. This arguably confirms the government’s belief that the costs of providing SMI should borne by something other than public spending. It does not, however, address inequities between income-poor homebuyers and others who benefit from state spending on housing that does not have to be repaid to the government.
Dr Chris Grover is senior lecturer in social policy at Lancaster University