Who is the safest in a recession - Home Owner or Renter?

Dithering_Dad

I have never received state benefits, other than child tax credits and child benefit, so I have no idea what is in place for assisting people who get into financial difficulties when they lose their jobs. I know that you can get your rent paid by the DSS if unemployed, but I'm not sure about your mortgage?

Just out of interest, if you had twin males, aged 35 who both had a wife and two kids, they both work at the same company and earn the same salary and their wives are SAHM's.

One of the twins bought his own home 4 years ago and though it has dropped in value recently, he owns about 40% of his home with equity of £90k. He pays £500pm on his repayment mortgage.

The other twin didn't want to buy and has instead been saving up. He has £30k of savings (less than his twin because of HPI). He pays £500 pm rent.

Both twins have 3 month's x salary worth of emergancy savings and both get made redundant on the same day when their company folds. They get redundancy amounting to 2 month's x salary.

The recession is deep and both cannot find work. The recession lasts 3 years. Which twin comes out of the recession in the better condition?

At first I thought that the renting twin would be better off as he doesn't have a mortgage to worry about. However with the latest rumours of government help for home owners, I'm not so sure.

Both will have to use their 3 months savings to fund themselves before they are allowed means-tested benefits, though the renting twin also has his house deposit and so still cannot get benefits. The home owning twin has equity but this is not means-tested and so he gets benefits much earlier.

The homeowning twin can go to an interest only mortgage, so this is now only £350 per month, plus he is entitled to 2 payment holidays per year. The renting brother cannot change his rent amount.

I'm assuming that both will receive benefits assisting with rent/mortgage? But will the renter's landlord accept DSS?

What are other people's views. As mentioned, with the recent reports of assistance for home owners, does this mean that home owners have more protection than renters? If so, then that's outrageously unfair.

It would mean that in my example, at the end of the recession, the homeowning twin would have his house and equity intact (less any HPC reduction) and the renting twin would have nothing. This can't be right/fair, surely?? :mad:

p.s. sorry if this post is a bit disjointed. I had to compose it on the sly over a few hours as I'm at work at the mo - you know the score .

Cannon_Fodder

You might take that one stage further, add in myself - I sold and now rent.

Redundancies are being talked about at work...

Got a big lump of cash awaiting the right house (although we wouldn't mind buying the rental we are now in if the landlord can be convinced) Ok that lump will last a long time...

...but does that lump of cash continue to count against you getting benefits until it has been spent?? i.e. spend 3/4s of a house worth of funds, while other people keep their houses and get benefits?!?!

If (after being made redundant) you go out and buy a house, does the DSS view that as deliberate disposal/tying-up of assets and deny you benefits?

Just because the Home-owner chose housing instead of another form of storing his cash, should he benefit from benefits more than anyone else??

Are there types of cash holding that will not be means tested?

Interesting thoughts!

justpurchased

Cannon_Fodder wrote: »

You might take that one stage further, add in myself - I sold and now rent.

Redundancies are being talked about at work...

Got a big lump of cash awaiting the right house (although we wouldn't mind buying the rental we are now in if the landlord can be convinced) Ok that lump will last a long time...

...but does that lump of cash continue to count against you getting benefits until it has been spent?? i.e. spend 3/4s of a house worth of funds, while other people keep their houses and get benefits?!?!

If (after being made redundant) you go out and buy a house, does the DSS view that as deliberate disposal/tying-up of assets and deny you benefits?

Just because the Home-owner chose housing instead of another form of storing his cash, should he benefit from benefits more than anyone else??

Are there types of cash holding that will not be means tested?

Interesting thoughts!

Any cash will count against you especially large deposits.
I think if you purchased a house after being made redundant I believe it would count against you as that money could see you by. (Even if that saves them money!)
Apparenly they are allowed access to your accounts (My Mrs knows a few people in benefits in LG)

Dithering_Dad

Cannon_Fodder wrote: »

You might take that one stage further, add in myself - I sold and now rent.

Redundancies are being talked about at work...

Got a big lump of cash awaiting the right house (although we wouldn't mind buying the rental we are now in if the landlord can be convinced) Ok that lump will last a long time...

...but does that lump of cash continue to count against you getting benefits until it has been spent?? i.e. spend 3/4s of a house worth of funds, while other people keep their houses and get benefits?!?!

If (after being made redundant) you go out and buy a house, does the DSS view that as deliberate disposal/tying-up of assets and deny you benefits?

Just because the Home-owner chose housing instead of another form of storing his cash, should he benefit from benefits more than anyone else??

Are there types of cash holding that will not be means tested?

Interesting thoughts!

I know from the pensions board that many benefits are means-tested. There is a Pensions V Isa thread where they discussed the relative merits of both and one argument was that if you have retirement savings in a pension then it's not means tested, if you have retirement savings in an ISA then they are means tested. It basically means that if you are unemployed or sick for a long time, your retirement savings are all used up to finance you until you're below the 6k saving limit.

After reading this I thought that it must be the same with housing equity and house deposit savings. One is means-tested and one is not.

This is OK in my book in the ISA v Pensions because people make a conscious choice of ISas over pensions and both are available to everyone, but it seems totally unfair with equity v deposit because buying often isn't a choice due to OTT houseprices.

As far as redundancy. Buying a house with redundancy money would be the same as using redundancy to pay off a chunk of your mortgage. The benefits people would say it's a Voluntary deprivation of assets and would do a calculation for means testing as though you had the money in cash. You'd also have difficulty getting a mortgage if you were redundant/unemployed anyway.

PasturesNew

The renter will be better off because the home owner can't afford to pay the mortgage. Benefits did pay interest only after 39 weeks, but in most cases (since last week) they will now pay interest only after 13 weeks. The amount of mortgage they would pay was interest on £100k, but that's now gone up to £175,000. But it is limited to 2 years. So after 2 years the home owner might have had his interest paid for him, but after 2 years he has to pay his mortgage himself


the home owner will also have extra costs out of their dole money. They will have to pay buildings insurance and pay for repairs/maintanence on the property too.

Dithering_Dad

PasturesNew wrote: »

The renter will be better off because the home owner can't afford to pay the mortgage. Benefits did pay interest only after 39 weeks, but in most cases (since last week) they will now pay interest only after 13 weeks. The amount of mortgage they would pay was interest on £100k, but that's now gone up to £175,000. But it is limited to 2 years. So after 2 years the home owner might have had his interest paid for him, but after 2 years he has to pay his mortgage himself


the home owner will also have extra costs out of their dole money. They will have to pay buildings insurance and pay for repairs/maintanence on the property too.

Thanks PN, I had no clue about how the benefit system works for mortgages. Would the renter receive housing benefit though if he had such large deposit savings? Is HB not means tested?

I guess in the case of my example, the home owning twin would be ok for the first two years because he has 3 month's worth of emergency savings which would cover the mortgage during the intial 13 weeks you mentioned. Is there a qualification period for housing benefit (though again twin #2 would be covered by his emergency savings too).

Does anyone know if there are any savings products where a house deposit (orother substantial savings) can be (legally) hidden from means-testing?

PasturesNew

Dithering_Dad wrote: »

Thanks PN, I had no clue about how the benefit system works for mortgages. Would the renter receive housing benefit though if he had such large deposit savings? Is HB not means tested?

Does anyone know if there are any savings products where a house deposit (orother substantial savings) can be (legally) hidden from means-testing?

No, he'd start getting benefits once he dropped down to a certain level. No idea what it is for a couple (never been a couple), but the figure of £16k rings a bell for a single person.

JSA isn't means tested.

justpurchased

PasturesNew wrote: »

No, he'd start getting benefits once he dropped down to a certain level. No idea what it is for a couple (never been a couple), but the figure of £16k rings a bell for a single person.

JSA isn't means tested.

Its not great news. here is the link.
http://www.dwp.gov.uk/lifeevent/benefits/housing_benefit.asp#caniget

Dithering_Dad

Just done a bit of googleresearch on Housing Benefit. You won't receive it if you have savings of over £16k of savings and savings over £3k can affect it:

"In order to receive Housing Benefit, you would need to have a low form of income, have no more than £16,000.00 in savings, and either you, or your partner pays rent on the accommodation. However, having savings over £3,000.00 could affect the amount of Housing Benefit you will receive.
"

"Housing Benefit will cover all the applicable costs of your rent, up to a certain amount, including charges for services such as a caretaker, communal laundry services, or play areas. If you are a couple, and both aged 18 or over, then you could receive up to £87.30 a week."

So in the example, twin #2 could receive upto £87.30 per week or £378.30 per month. He'd obviously have to leave his current accomodation and move to cheaper accomodation. Doesn't seem fair if they have to move to perhaps a crappier area and away from school and friends, while the home owner can stay put, albiet only for two years.

Dithering_Dad

Just googled mmeans-tested benefits and Income support is means tested with a joint savings limit of £8k, Housing Benefit we already know and Council Tax benefit savings limit is £16k.

WTF?_2

A more pertinent question would be "Who is safest: Debtor or Saver"?

If you took on a huge mortgage to buy an overpriced house and are in negative equity to the tune of thousands (or tens of thousands) then I think it's a no-brainer to say that you are orders of magnitude worse off than someone who chose to rent and save money for a house when prices became sane again.


If you measure safety by how much cash you can wring out of the social security system (should be interesting to see how that holds up) then I guess you could make a point for having 'benefited' from poor money management. Personally I'd feel better living off the interest from my savings than a state handout should things go pear-shaped.