Benefits Based Borrowing A guide for disabled people using their benefits to buy property suited to their needs.
Introduction Many disabled people rely on state benefits for part or all of their income and, if you need a mortgage to buy a house, you may also be eligible for a further loan from the Department for Work & Pensions to help meet the cost of the mortgage interest. Loans for Mortgage Interest (LMI) replace the benefit known as Support for Mortgage Interest (SMI) from 6 April 2018. If you already receive Support for Mortgage Interest, you will be invited to apply for LMI before April 2018. This booklet explains how you may qualify for LMI to help you buy a home. It highlights the things you should consider before taking out a benefits-based mortgage and explains the process for obtaining one. For simplicity, we refer to a disabled person but the rules apply equally to a household which includes a disabled person. A disabled person can be someone with learning difficulties or mental health problems, as well as someone with sensory or physical impairments. In summary, this booklet is relevant to you if: You or a member of your household are disabled Your main source of income is state benefits You wish to buy a home that the disabled person will occupy Help to buy a home To qualify for a Loan for Mortgage Interest to help meet the cost of mortgage interest payments, you need to be eligible for one of the benefits below: Income Support Income-based Jobseeker s Allowance Income-related Employment & Support Allowance Pension Guarantee Credit Universal Credit (but only if you - or your partner if you have one have no earnings)
Can I get help immediately? There is a qualifying period of 39 weeks during which you will have to pay the mortgage interest yourself. This qualifying period does not apply if you have been getting SMI and it is being replaced by a Loan for Mortgage Interest on 6 April 2018. *If you get Jobseeker s Allowance, or are in the full work conditionality group for Universal Credit, you will only be entitled to LMI for a maximum of 2 years. When am I entitled to help? You may get a Loan for Mortgage Interest to help pay the interest on a new mortgage if you need to move to a house more suited to the needs of a disabled person. In some cases, LMI may also apply to additional loans for adaptations to make your new home suitable for the disabled resident. Apart from its physical design, your new home could be more suitable because, for example, it is located nearer support or employment, or it enables a disabled person to live independently. However, the home you buy should not be bigger, or more expensive, than you need. Are there any other conditions? Because the DWP are giving you a loan to pay the mortgage interest, it will have to be repaid at some stage. Before you are granted the LMI, you will have to see a lawyer to have a standard security placed on the property. This is a legal process which ensures that the LMI is repaid to the DWP when the property is sold. Anyone else who lives in the property, and who is not a legal owner, must also give their written consent to this standard security. During the 6 months before the offer of a LMI is accepted, you must have taken independent advice. Will my mortgage meet the cost of my new home?
While you may qualify for LMI towards the interest payments of a mortgage up to 200,000*, you may not be able to get a mortgage this large. The mortgage you are offered will depend on the value of the house, your circumstances, and the percentage of the property s value the mortgage lender is prepared to lend against. *This limit applies to Universal Credit recipients, or people previously receiving Support for Mortgage Interest. If you are on any other qualifying benefit, the maximum mortgage to which LMI applies is 100,000. How much will a benefits-based mortgage cost? A benefits-based mortgage should cost you very little. If you qualify for a Loan for Mortgage Interest, it will help meet the cost of paying your mortgage interest. It is set at a fixed interest rate for everyone, so you may get more or less than your actual mortgage interest each month. You will need to top up the mortgage payments out of your other income if the LMI is not enough to cover the monthly payments required by your mortgage lender. If the LMI is more than your monthly mortgage payment, the extra is paid into your mortgage account, and goes towards paying off the capital sum you have borrowed. What other costs are there? You will normally need to pay a financial adviser for finding a suitable mortgage, and a fee to the lender for setting up the mortgage. You may also choose to take out life insurance cover and, for an interest only mortgage, arrange a means of repaying the original sum you borrowed from the mortgage lender. You will also be responsible for the home buying costs such as legal fees, moving and furnishing expenses, and buildings and contents insurance. From April 2018, one condition of getting a Loan for Mortgage Interest is that you have obtained financial advice. In some cases you may have to pay for this advice.
When will I pay off the mortgage? The LMI you receive only helps with the interest charged by your mortgage lender. It does not repay the money you borrowed to buy your home. You will have to make separate arrangements to pay off the original sum borrowed. See Do you want to pay off your mortgage?. When will I pay off the Loan for Mortgage Interest? The LMI must be paid off when: the person who took out the Loan for Mortgage Interest dies, if there is a surviving partner living there, when they die, or the property is sold In addition, LMI payments will stop if: the person with the loan stops getting any of the qualifying benefits, or the person with the loan (or their partner) is getting Universal Credit and starts earning anything at all Who owns the home I buy? You are the owner of the property. You must insure, maintain and repair your home. If you sell it, you are entitled to keep any money left over after the mortgage, LMI, and any other loans are repaid. How will I pay for repairs and maintenance? You will need to save money to pay for small repairs and improvements. If arrangements are in place for minor repairs and maintenance (called factoring ) you will normally have to pay this out of your benefit income. You may be eligible for help with interest on a loan you take out to improve your home. This could include window replacement, structural or damp works, or the installation of a heating system. The loan does not need to be a re-mortgage, but can be a normal loan, as long as you can show that it was used to improve the property. If there is a Care and Repair scheme in your local area, they will usually offer free advice and assistance to help you repair and adapt your home.
What if I need to adapt my home? You can ask a local authority occupational therapist to advise you on the suitability of a home you plan to buy. Under a Scottish Government policy - the Scheme of Assistance - you may be able to get help with the adaptations from your local authority. What happens if I can t repay my mortgage? If you become unable to repay a mortgage or loan on your home, you may have to sell it and look for a cheaper property to buy or rent. If you have a Loan for Mortgage Interest, this will have to be repaid to the DWP when you sell your home. Alternatively, the Scottish Government s Home Owners Support Fund can help in one of two ways either by buying up to a 30% share of your house thus reducing your mortgage payments, or arranging for a housing association to buy your home and rent it back to you. You may be entitled to Housing Benefit to help you pay this rent. What happens if I get a job? If you or another member of your household start working in the future, a large benefits-based mortgage may not be suitable for you. This is because you could lose your entitlement to Income Support, Jobseeker s Allowance, Employment & Support Allowance or Pension Credit. You cannot get a Loan for Mortgage Interest without also receiving one of these qualifying benefits so, if you stop getting these benefits, your Loan for Mortgage Interest payments will also stop. If you get Universal Credit, you are not eligible for a Loan for Mortgage Interest if you or your partner have any earnings. Planning to take paid employment in the future does not mean that a benefitsbased mortgage is unsuitable. However, you must be able to pay the mortgage from your likely earnings.
A financial adviser can help you to work out if you could afford this, and whether cheaper mortgages would become available when you start earning money from employment. How do I pay off the mortgage? The Loan for Mortgage Interest payment you get each month only helps with the cost of interest charged by a mortgage lender. It does not repay any of the original sum of money borrowed. So, if this is the only payment you make to the mortgage lender, you will owe them as much at the end of a 25 year mortgage as at the start. You must repay the original sum of money you borrowed at the end of the mortgage period, normally 25 years. You can do this by selling the house, using other money such as an inheritance, or by re-mortgaging for an extended period. Alternatively, you may decide (or be required by your lender) to put some money aside each month to repay the lender at the end of the mortgage period. What type of mortgage should I choose? Everyone s circumstances are unique so a mortgage that suits one person may not suit another. This is why it is a good idea to seek independent financial advice. Housing Options Scotland can also help you to think through the options. There are many different mortgage products out there, but they fall into two categories; repayment or interest only. With a repayment mortgage you pay both the capital of the loan as well as the interest, whereas with an interest only mortgage, you only pay the interest. Interest only mortgages are much harder to obtain, as they require large deposits and clear evidence of a repayment vehicle (Housing Options Scotland would always recommend having a repayment vehicle). This is usually some sort of savings product that will pay off the sum you have borrowed at the end of the mortgage term.
To make sure you get a mortgage that is suited to your situation, we always recommend seeking independent financial advice. What about the people who live with me? The Loan for Mortgage Interest you get may be reduced if you have adult children or older relatives living with you. Usually anyone over 18 in the household is expected to contribute, so your LMI payments are reduced. The exception is where you or your partner get the care component of Disability Living Allowance, the daily living component of Personal Independence Payment, Attendance Allowance, or are blind. A live-in carer who is paid to look after you will not affect your benefits. The buying process 1. Make sure you are entitled to Income Support, Jobseeker s Allowance, Employment & Support Allowance, Universal Credit or Pension Credit. You may not already be getting Income Support, but will qualify once your housing costs are factored in. 2. Work out how you will fund the costs of buying that are not met by a mortgage. These may include a deposit, legal fees, survey costs, moving expenses and buildings and contents insurance. 3. If you plan to apply for a Loan for Mortgage Interest because you need to move to a home more suited to the needs of a disabled person, get written evidence from an occupational therapist, consultant, social worker or doctor to support your claim. You will also need to get independent advice on taking out a LMI. 4. Confirm that your benefits office will - in principle award a loan to meet the costs of the mortgage interest on a new home. Write to them explaining your current situation and what you intend to do, and enclosing evidence of your need to move house. Ask for a DLIS/170 letter from them to show to your prospective mortgage lender.
5. If you already own a house which you will be selling to buy the new property, write to your benefits office explaining this. If they are not aware of your plans the money from the sale could affect your benefits. You normally have 6 months in which to use the money to buy a new house before your benefit is affected. 6. Get a mortgage promise from a bank or building society. If you have a mortgage already, try your current lender first. A financial adviser may also be able to help you find a willing lender. If you are having trouble with this part of the process, Housing Options Scotland may be able to advise and support you with options. 7. Consider the costs of any life cover or repayment vehicle you decide to take out to repay the money you will borrowing. 8. Appoint a solicitor to act for you when making an offer and completing a sale. If possible, agree a fixed fee before you start as this will help you budget. 9. If you are buying a house to suit a physically disabled person, ask an occupational therapist from your local authority to assess the suitability of any property you find. Make sure that, if any adaptations are required, you know how much, if anything, you will be expected to contribute towards the cost. 10. Check the Home Report and make sure that the property is suitable and in a good state of repair. 11. Check whether the expected costs of buying, and ongoing ownership costs, are affordable. Bear in mind that you can normally only get a mortgage up to the surveyor s valuation of the property. You will have to fund any offer over valuation from another source, such as savings or gifts from friends and family.
12. Make an offer through your solicitor. Once an entry date for the property has been agreed with the seller, and your mortgage is in place, write immediately to your benefits office explaining this. 13. Sell your current home if you own one. 14. Contact your benefits office and apply for LMI to meet the interest on your mortgage. Your lawyer will have to register a standard security over the property in favour of the DWP. Your payments should start automatically after 39 weeks, and will be made directly to your lender. 15. Move in - and enjoy your new home!
Next steps... The information in this booklet is complicated. If you need some help understanding it we ll happily talk you through it. You may also get help from: a financial adviser a lawyer or solicitor a benefits adviser at a Citizens Advice Bureau or other welfare rights specialist If you want more information about applying for a benefits-based mortgage, or need some help in doing so, contact us. Our address, telephone and email contact details are on the back page.
About us Housing Options Scotland is a Scottish charity which aims to resolve the housing problems faced by disabled people. We are funded primarily by the Scottish Government, with additional monies provided by charitable trusts. Our expertise lies in the benefit regulations specific to home ownership and disabled people. Other regulations that apply to all benefit claimants may also be relevant to you. Seek the advice of a benefits specialist, such as a Citizens Advice Bureau, if you are in any doubt. Buying a home involves complex financial and legal transactions. We can give you information and advice, but we are not lawyers or financial advisers. Everyone should seek appropriate professional advice. Contacts Housing Options Scotland Tel: 0131 247 1400 The Melting Pot 5 Rose Street Email: info@housingoptionsscotland.org.uk Edinburgh Web: www.housingoptionsscotland.org.uk Housing Options Scotland 2016 Housing Options Scotland (formerly Ownership Options in Scotland) is a registered charity (No. SC027335) and is registered in Scotland as a company limited by guarantee (No. SC180581).