Monday, 4 October 2010
As you will be aware this month the Department of Works and Pensions (DWP) implemented the Coalition Government’s reduction in ISMI for unemployed homeowners, resulting in a reduction in the amount of interest paid from 6.08% p.a. to the Bank of England’s average monthly mortgage rate, which is currently 3.63% p.a.
While the Scottish Parliament and Scottish Government are to be congratulated in strengthening the rights of homeowners in Scotland, with the coming into force this month of the Home Owner and Debtor Protection (Scotland) Act 2010, it goes without saying that this Act provides homeowners with a procedural opportunity to find a sustainable solution to mortgage arrears, as opposed to providing the solution per se.
Sustainable solutions have frequently included giving someone enough time to get back into work, and/or enough time to repay arrears and meet their ongoing monthly mortgage. But the new reduced rate of ISMI now cuts across the ability of out-of-work Scots to maintain an even keel while they sort out their financial position; and this will have profound implications for the role of the Scottish Government’s Home Owner Support Fund (HOSF), and in particular the Mortgage to Rent Scheme (MtRS).
To give a typical example. Our client is a lone parent who had lost her job. She has a young dependent child. The DWP were paying £742 p.m to her capital and interest mortgage, resulting in a shortfall of £376 p.m. Her family were prepared to make up that shortfall and the court action would be continued on that basis, giving her time to try and get back into work. Due to the UK Government’s policy, this month the DWP reduced her ISMI to £433 p.m, resulting in a 80% increase in her shortfall to £678 p.m. Suffice it to say, she cannot pay this (she received £59.49 IBJSA), nor can her family do so.
As you know, the Scottish Government’s MtRS was changed on 16 March 2009, with a number of additional qualifying hurdles being introduced, including the expectation that where applicants were eligible for ISMI they would generally be expected to use that as a short term solution, as opposed to MtRS. Clearly, the DWP ISMI change drives a horse and carriage through that policy, even for unemployed Scottish homeowners with interest rates slightly above the Bank of England’s average rate (i.e. in the example case cited, the rate of interest is 6% p.a. which is not uncommon, and is a prime lender rate from a High Street bank).
Govan Law Centre is very concerned with the impact of the DWP ISMI changes in Scotland. We appreciate this is a Westminster issue, but clearly the Scottish Government has the power to lessen the impact of this regressive policy change through the HOSF. Accordingly, we would be grateful if you could advise whether:
(a) The Scottish Government would be willing to urgently revise the HOSF scheme rules (and application forms) to make it expressly clear that unemployed Scottish homeowners on ISMI at a rate above the Bank of England’s average rate will not be excluded from applying for help due to their ISMI eligibility?; and
(b) In the example case given, our client will now be applying to the HOSF for access to the MtRS, whereas had the DWP changes not occurred she would not have had to do so. There will be many Scottish households facing repossession who will now face this Hobson’s choice. This may well place a significant additional demand on the HOSF. Is the Scottish Government willing to meet this demand by increasing the level of funding available to the HOSF, so that the Scottish households affected by the DWP ISMI changes are not excluded from assistance?
(It will be noted, that in the example given, our client cannot even afford to sell her home, due to the prohibitive cost of a Scottish Home Report, and therefore she is placed in an extremely vulnerable position as regards a short to medium term solution in relation to her financial predicament)".