Support for Mortgage Interest

Generali

Interesting figures.

I still think that this should be a time limited benefit however. Certainly the taxpayer shouldn't be paying the mortgage of retired people who have no prospect of ever repaying the debt. The asset should be sold and the money used to support the lifestyle of the people involved.

The Government shouldn't be in the business of supporting asset ownership financially. Why should there be a different treatment of a loan used to support a business that pays for housing and a loan that pays for housing directly for example?

nearlynew

RenovationMan wrote: »

Are you suggesting that mortgages should be disbanded and that everyone should have to save up to buy houses outright?

No.

Whatever gave you that idea?

HappyMJ

nearlynew wrote: »

Not true.

If they OWNED the house they wouldn't be eligible for SMI

I own my house and I have a secured loan against it. The bank does not own my house. They do not take the risk of the property value falling nor do they take the benefit from the property price increasing. That is my risk.

RUN_RABBIT_RUN wrote: »

so the state would be paying on average more to claimants in housing benefit than on smi

also there are currently around 5 million people claiming housing benefit and just 30,000 people on jsa claiming smi

draw your own conclusions

On an individual basis yes. For example one bedroom flats on my street. £75,000 to buy 25% deposit required costing £170 a month in SMI if the purchaser find themselves unemployed for more than 3 months and for a maximum of 2 years. Or...£425 a month rent of which £365 is covered by housing benefit covered immediately and forever.

nearlynew

As I said ...

People claiming SMI are in a similar position to those priced out of the market -

Neither group can afford to buy a house.

HAMISH_MCTAVISH

Generali wrote: »

The Government shouldn't be in the business of supporting asset ownership financially.

The government should be in the business of fulfilling it's responsibilities in the most cost effective way possible.

Where SMI is cheaper for the government than rent support, or emergency accomodation, or a council house, then they should pay SMI.

I suppose you could argue that if people were forced to sell and live off the proceeds until it ran out, then it might be cheaper short term.

However the chances of them getting back on the housing ladder would be slim, so you'd probably end up paying far more in the long term.

Graham_Devon

Can we stop suggesting that if these people were not claiming SMI they would be on housing benefit? There seems to be an insistance to use the pretence that these people have no worth to their name.

Some, and I am careful here not to suggest all, will have equity in their homes. Some may have tens of thousands of pounds in equity. You'd hope so for the 50%+ who are at pension age.

Therefore, they would not need, and secondly, would not be eligible for housing benefit, as they would have their own means of paying rent, or finding the cash to downsize.

Again, careful not to suggest all, or even the majority. But we have seen articles whereby pensioners are sitting in 4 bed houses, claming SMI. Currently, there is no incentive for them to downsize. The incentive is to hang on to their equity and get top ups by the government.

The sad case is, that 50%+ of the group of SMI claimants simply took on too large a mortgage. One that they could never afford as they are now in retirement, hence face the situation they are in now.

There should be a time limit set, and a time limit stuck to. 2 years is plenty for people to find their feet. If they are never actually going to be capable of finding their feet, then they should be asked to use what (if any) equity they have, or move onto the housing benefit system.

Yes, the housing benefit system may cost more. But it's a rather flippant line to back up the use of SMI, as the majority probably have tens of thousands worth of equity which they, like everyone else has to, could use in their retirement to pay their living costs.

Generali

HAMISH_MCTAVISH wrote: »

The government should be in the business of fulfilling it's responsibilities in the most cost effective way possible.

Where SMI is cheaper for the government than rent support, or emergency accomodation, or a council house, then they should pay SMI.

I suppose you could argue that if people were forced to sell and live off the proceeds until it ran out, then it might be cheaper short term.

However the chances of them getting back on the housing ladder would be slim, so you'd probably end up paying far more in the long term.

All perfectly true if you fall for the economic fallacy of ceteris paribus (all other things being equal).

I have met many people that can't work because the state pays their mortgage interest: if they ever work again then that will stop for a while so they don't want to work because they fear losing the only thing they feel that they have left.

If they faced repossession at some point it would spur them to get up and do something about it IMHO.

Generally speaking I think it's a good idea to own the house you live in. I don't want to pay for that for other people however and TBH I think it does them no favours either.

the_flying_pig

HAMISH_MCTAVISH wrote: »

They do OWN the house.

They may also OWE money to a bank.

But the bank does not own the house.

I realise it's a subtle distinction and thus probably beyond your comprehension, but it's a fact that homeowners, even with a mortgage, do legally own their house.

If they fail to pay their debt then a bank can take legal action to force the sale of assets to pay that debt.... But then again so can a council if you fail to pay council tax, a credit card company if you fail to pay credit cards, etc.

bit simplistic there, H, legally of course they are homeowners but substantively there are both similarities & differences with outright homeowners.


anyway, the point i'm surprised that no-one else* has made - if the average claim is really only £30 per week, that's about £1500 per year, at the BoE standard rate of 3.63% that implies average debt of only about £40k. Unless claimants are mostly living in garden sheds that implies most have very significant equity which they can & should be burning through before claiming benefits. assuming an average property value of [to keep the numbers simple] £100k, an average £60k of equity would enable them to pay off 40 years' worth of interest at 3.6% before sliding into negative equity. i'm sure that most claimants' circumstances would change [ahem, one way or another] at some point during that period, eliminating the need for support.

[* - edit - whilst i was typing at least two other people made pretty much the same point, albeit in unquantified way]

Radiantsoul

Presumably a way forwards would be for a charge to be put on the property of those who take SMI support and for the amount advanced to accrue interest.

HappyMJ

the_flying_pig wrote: »

bit simplistic there, H, legally of course they are homeowners but substantively there are both similarities & differences with outright homeowners.


anyway, the point i'm surprised that no-one else has made - if the average claim is really only £30 per week, that's about £1500 per year, at the BoE standard rate of 3.63% that implies average debt of only about £40k. Unless claimants are mostly living in garden sheds that implies most have very significant equity which they can & should be burning through before claiming benefits. assuming an average property value of [to keep the numbers simple] £100k, an average £60k of equity would enable them to pay off 40 years' worth of interest at 3.6% before sliding into negative equity. i'm sure that most claimants' circumstances would change [ahem, one way or another] at some point during that period, eliminating the need for support.

The bank would take action to repossess long before the property was in negative equity. At least I would think so. So they would have to sell at the best market rate possible so it not a forced sale. They would have £60,000 of cash yes. They would not get HB straight away but they would have to pay the rent. Once the money runs out getting below £16,000 which would only take about 5 years or so they would then claim HB costing much more than SMI and it is only the interest the government is paying they don't pay any of the capital or any of the maintenance costs or buildings insurance as would be included in rent. Should SMI be repayable then on sale of the property?

edit:as radiantsoul suggests (i must type quicker)