DWP & mortgage payments

It is easy to fall into debt

Meeting monthly mortgage payments is a top priority for all home-owners. But what happens when you lose your job and go onto benefits?

In some circumstances the state will pay mortgage interest. But sometimes these payments can fall short, leaving you at risk of a growing debt.

If you lose your job and go onto Jobseeker's Allowance, there is a period of up to nine months, when you will get no help at all in meeting your mortgage interest payments.

After that, the state will pay the interest payments until you are back in work. But even then, it does not mean all your interest will be paid.

Money Box listener Linda told the programme: "We assumed that when they say they will pay the interest on your mortgage. that is what they meant."

But it was not. Each month Linda's bank was receiving around £40 less than her full mortgage interest.

This was happening because the Department for Work and Pensions only pays interest at the average rate charged by major lenders, not the actual rate the person is paying.

"Not enough warnings"

The average rate is currently 5.34%. But Linda's mortgage rate is around 0.5% more than that, at 5.85%.

Linda is angry about this, as she told the programme: "I think at the very least, they could tell people they are not paying the full amount.

"People need to know this is likely, because they are running up a debt with their mortgage when they think they are not."

The expertise even on dealing with this at the local job centre is very low Gary Vaux, Hertfordshire Council

Although there is information that people should receive when they first claim Jobseeker's Allowance or Income Support, they do not spell out that you could face a shortfall like Linda's.

Gary Vaux, from the Money Advice Unit at Hertfordshire County Council says not enough warnings are given.

He told the programme: "The expertise even on dealing with this at the local job centre is very low. Forty pounds a month does not sound a great deal... but if you are on income support or Jobseeker's Allowance there is no spare cash."

Mr Vaux advised people in this situation to speak to their mortgage provider to discuss options such as, extending their mortgage, to avoid falling into mortgage arrears.

And he told the programme he believes the rules should be modernised.

"This problem has not been looked at since the mid nineties... The assumption was that people would take out mortgage protection policies, which would help them if they lost their job,

With house prices having gone up, mortgage protection policies have become prohibitively expensive, for many people. And they find that if they lose their job, they do not have the cover that the government assumes they have."

BBC Radio 4's Money Box was broadcast on Saturday, 20 September, 2003 at 12:04 BST.