Mortgage Interest Rate Relief

Steve Webb
To ask the Secretary of State for Work and Pensions what mortgage interest rate his Department is currently paying claimants entitled to assistance with mortgage interest; how many claimants have been paid less than this interest rate since the pre-Budget report; by how much those claimants have been underpaid; when he expects to be able to make good the payments to those claimants; and if he will make a statement.

Kitty Ussher
[holding answer 27 January 2009]: On 24 November 2008, the Chancellor announced in the pre-Budget report that because of the exceptional circumstances in the economy and the housing market, the Government would maintain, for six months, the level of support for mortgage interest based on a standard interest rate of 6.08 per cent.

Some people will experience a temporary drop below 6.08 per cent. (to 4.58 per cent.) because our IT systems had been programmed to track the Bank of England base rate. When the Chancellor's decision was made, our IT systems that are used to assess and pay DWP benefits had started automatically to implement the 1.5 per cent. reduction in the base rate announced by the Bank of England on 6 November.

We were able to re-adjust the rate back to 6.08 per cent. for people getting income-based jobseeker's allowance and income-related employment and support allowance. This amounted to 5 per cent. of the affected cases.

We could not do so for those getting income support and pension credit without a high risk of disrupting the normal running of our IT systems, most critically the uprating of benefits, which would have affected many more people than just those getting support for mortgage interest.

We estimate that 80,000 income support customers and 115,000 pension credit customers receive support for mortgage interest and these are currently being paid at 4.58 per cent.

We are taking urgent action to ensure that these customers do not lose out, and that cases are corrected to reflect the Chancellor's commitment. I can assure the House that no one is being paid support for mortgage at an interest rate below 4.58 per cent.

In total, departmental expenditure on support for mortgage interest is currently being underpaid at £1.5 million per week. In the vast majority of cases, we transfer customers' support for mortgage interest direct to their lender, so the customer will not see a fall in the amount of money they themselves receive each week. However, we estimate that, on average, support for mortgage interest in respect of pension credit customers will have been underpaid by £7 per week and in respect of income support customers by £11 per week.

We will make a corrective adjustment for a period of five weeks from 2 February to 8 March 2009. During this period, customers will receive an increase in their benefit to compensate them for the earlier reduction. Then, from 9 March benefit will be readjusted to the correct level with the standard interest rate set at 6.08 per cent.

Mortgage lenders, via the Council of Mortgage Lenders, have also been advised about the situation to ensure that lenders are aware of exactly what is happening.

Our staff have been fully briefed and we have issued clear guidance to local authority staff.