i think i hate schedule 3 above all the legislation (excluding tax credits) but occasions arise where you just have to grapple with it. you have to look very carefully at every word! they might not be saying what you think they are saying - i'd be very worried if they are saying that, for everybody else... if you can get them to quote the precise para they are disallowing under it might help narrow it down.
but you will need to look at the definitions of 'existing housing costs' and 'new housing costs' in para 1 of the schedule - you will see immediately the rules are not a simplistic as the DWP are suggesting, and to acscertain whether the loan comes under para 16 (1). see also para 4 (4) which defines a relevant period - this refers to restrictions on loans taken out when a person is receiving IS etc.
going on what you say, it is possible that they are misreading para 4(2), but that's no more than a wild guess.
if you have the loan details, and follow the definitions through the schedule, you should be able to work out whether she qualifies for help, and since she originally took out the loan in 1990 there's a good chance she does, and that they are wrong...(and it is not the case that new housing costs are never met in any circumstances, as you imply above, but there are restrictions.)
if you establish that she qualifies for help with the loan, you can then move on to 16 (2) and have all the fun of working out how much... <wink>
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