I'm finding your interest problem slightly hard to understand. You seem to be saying that the basic mortgage - taken out to acquire an interest in the dwelling used as the home - has outstanding capital of £52,000. How much of that is (for example) capitalised arrears? No interest will be paid on that. The home improvements will only qualify if they are covered by para 16 of Sched 3 of the IS regulations which you can access through Briefcase if you don't have any textbooks available to you. It's fairly basic stuff but can include the costs of adapting a house for the needs of a disabled person, keeping it fit for habitation, and the providion of essential facilities for heating, cooking, insulation, lighting and plumbing. But I can't see that a loan of £5700 could possibly give rise to interest charges of £700 a month (a lot more than £5700 in a year!) - so I presume that this includes capital repayments with swinging interest over a short term - and income support doesn't pay capital on any sort of loan, only capital.
Sorry, not very helpful. They would probably be priority for rehousing if possession is obtained and on these facts it would be outrageous for a local authority to consider them to have made themselves homeless by not paying the mortgage.
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