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Mortgage Interest - Housing Costs to 2.50%?
As I’ve read it From October 2010, the standard interest rate used to calculate Mortgage Interest payments will be set at 2.5% rather than the 6.08% which is presently used.
2.49 From October 2010, the standard interest rate used to calculate Support
for Mortgage Interest payments will be set at a level equal to the Bank of
England’s published monthly Average Mortgage Rate.
Now I couldn’t find the Bank of England stats but I think these are taken from them…..
Assuming that that is what the rate is in October, yes. Subject, of course, to the Finance Bill being passed - though they may be able to do that one without the use of primary legislation.
According to the DWP press release on the budget, the average mortgage rate is currently 3.67%
thats still bad, can’t find it ‘published’ anywhere on the BoE website.
Welcome to the new boss, same as the old boss…. ‘To ensure that Support for Mortgage Interest (SMI) is better targeted we will reduce the rate…’
How? Just how is that better targetting?
With the dual blow of the LHA rate ‘base line’ reducing to the 30th centile from the 50th it could be quite bad for property prices.
As a Homelessness Officer I expect an increase in evictions. More work on a frozen pay and less pension.
Any system which isn’t directly related to the mortgage interest payable will create some winners and some losers. Those people who have tracker mortgages at below base rate will have been making a substantial amount from the current interest rate while those on seriously sub-prime rates will have done badly.
It isn’t clear what the profile of mortgage types for benefit recipients is, as there is no particular reason to assume that benefit claimants would have been previously in a more risky group when they took out a mortgage and few lenders will advance to people receiving benefits.
As a Homelessness Officer I expect an increase in evictions. More work on a frozen pay and less pension.
I like more work, less pay, less pension more than no work, no pay, no pension.
It is a big cut and I wondered what measure they would be using.
The nearest likely candidate I could find was CFMHSDE
or “Monthly average of UK resident monetary financial institutions’ (excl. Central Bank) sterling weighted average interest rate, loans secured on dwellings to households (in percent) notseasonally adjusted”
see http://www.bankofengland.co.uk/statistics/
( under interest and exchange rates-> effective interest rates -> household )
These are the latest figures…
31 May 09 3.59
30 Jun 09 3.59
31 Jul 09 3.57
31 Aug 09 3.58
30 Sep 09 3.58
31 Oct 09 3.56
30 Nov 09 3.57
31 Dec 09 3.59
31 Jan 10 3.67
28 Feb 10 3.67
31 Mar 10 3.66
30 Apr 10 3.67
There are loads of different series on the Bank of England stats website but that one does match the 3.67 quoted in the DWP press release. Looks like they expect to save just 10m this year and then lose 75m next year as a result of this chage - (? as a result of (big) expected interest rate increases?)
That seems to be the one.
I haven’t seen any reference to the 2 year limit that came in in Jan 09. That’s going to start impacting repossions in 6 months unless it is changed.
Regs to implement the change from October 2010 are at
http://www.opsi.gov.uk/si/si2010/pdf/uksi_20101811_en.pdf
The new standard rate will be initially based on the August 2010 HSDE figure (in recent months this has been 3.66% or 3.67% ) - the standard rate will then only move if HSDE drifts by more than 0.5%.
The new figure is a weighted average used by the Bank of England which is not actually the average (mean) rate paid by all borrowers. It’s actually less than many will be paying.
Much of the mortgage market is shared between a few big lenders so the weighting reflects this. In particular, this means that people with sub prime lenders who typically charge a lot more than the market rate will see a big shortfall. To date repossession problems with sub prime lenders have been masked by the unusually high standard interest rate at a time of record low market interest rates.
Even without changes in Base Rates, The weighted average can shift over time as people come off the heavily discounted tracker rates granted a few years ago and have to face higher rates on new mortgage “products”. This means the weighted average may move slightly more favourably over the next year or so.
Of course, we can expect to see many more mortgage arrears cases, especially among the odious sub-prime sector.
Any guesses about what will happen to the 2 year limit on housing costs for those on IBJSA and the £200K limit for new claims?
From some of our modelling for a couple, the figures for a £100,000 interest only mortgage at 4.5% will be (with this year showing the 6.08% rate)
Emergency Budget Results
2010/2011 2011/2012 2012/2013 2013/2014
Means Tested Job Seekers Allowance
219.67 173.33 173.33 102.75
Council Tax Benefit
24.04 24.04 24.04 24.04
Housing Costs (inc. CT of £1250pa)
110.58 110.58 110.58 110.58
I can’t see any government, in this housing market at least, wanting to be seen kicking people onto the streets.
I know that the SSAC have raised the matter, pointing out that decisions need to be made quickly as people will need to plan for alternatives if they don’t change / extend the rule.