Homeowners feel the pain of government cuts

By Brian Milligan
Business reporter, BBC News

Image caption,
Amanda Copeland has to find an extra £400 a month

On Thursday this week, winter storms were lashing the cliffs at Saltdean, near Brighton.

In such weather, having a secure home seems even more important than usual.

But Amanda Copeland, who lives in a bungalow in Saltdean with her three young children, believes she is about to lose hers for good.

"There's probably a good likelihood this house will be repossessed within the next year or so," she says.

Amanda is one of a quarter of a million homeowners in the UK who receive a benefit called Support for Mortgage Interest (SMI).

But as a result of some of the first government cuts to take effect, that benefit was cut by 40% from 1 October.

She, and more than 100,000 others, now face a shortfall in their mortgage payments.

'Slippery Slope'

SMI helps people pay the interest on their mortgages if they receive a range of other benefits like income support or job seekers' allowance.

Amanda gave up work as a nurse in June to look after her children, who are all under the age of eight.

She says she could not afford to pay for childcare while they were all so young.

She now lives on benefits.

As a result of the cut in mortgage support, she needs to find nearly £400 extra each month.

Inevitably that sum is going straight on her mortgage arrears, which already amount to more than £4000.

"What's going to happen to us? Are we going to end up in some kind of homeless hostel accommodation?" she wonders.

"It feels like a slippery slope, destination unknown. And no one to help."

Hanging on

The housing charity Shelter is taking daily calls from people in a similar situation to Amanda.

Image caption,
Cambell Robb of Shelter says many people have received just a few weeks notice of the change

It believes than more than three million people in the UK are now struggling to pay their mortgages.

The cut in SMI is only one factor, but nevertheless the charity believes the number of repossessions is likely to rise.

"A lot of people are hanging on by the skin of their teeth to stay in their homes," says Shelter's boss, Campbell Robb.

Shelter is also angry about the amount of notice that people like Amanda were given before the changes were brought in.

She received a letter three weeks before she had to find the extra money.

"Nearly a quarter of a million people have had hardly any notice at all about a very significant change," he said.

Too generous

The SMI scheme was originally started by the Labour government in November 2008.

To try and cope with the threat of repossessions, the mortgage interest rate which it paid was increased, temporarily, to 6%.

That meant that mortgage lenders were paid as if they were charging borrowers at a rate of 6%, even though the rate they were charging was often significantly less than that.

Where there was a surplus, the difference was used to pay down the capital on the loan, as well as pay off the interest, giving recipients an extra benefit.

The coalition government argued that 6% was, therefore, too generous.

From 1 October, it therefore reduced the rate to 3.65%, in line with average mortgage rate actually prevailing.

Lord Freud, one of the ministers for welfare reform, says the state was simply over-supporting people.

"The problem with the 6% rate was that 90% of people were actually getting more than their interest," he says.

Image caption,
Lord Freud argues that the government was being too generous

He now wants to persuade the banks to give people on SMI a cheaper loan rate.

"After all, they're being paid by an organisation with a triple-A rating," he says.

In other words, the government represents a very good credit risk, so should deserve an advantageous mortgage rate.

Serious battle

Back in Sussex, Amanda Copeland accepts the government's argument that those in work should always be better off than those on benefits.

But she insists that the support she needs from the state is only temporary.

When two year-old Charlie is old enough for school, she can go back to her job as a nurse.

In the meantime, she faces a serious battle to stay in her bungalow, not just for the duration of the winter storms, but until her financial outlook becomes more settled.

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