Turning housing benefit into homes is easier said than done
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, comments on the Prime Minister’s announcements on housing reforms (9 June), noting turning housing benefit into homes is easier said than done.
Key points from announcement:
- The Prime Minister announced plans to enable people to spend their housing benefit on rent, or put it towards buying a property.
- To avoid people’s deposit cash from reducing their eligibility for benefits, the government is also looking at whether to discount Lifetime and Help to Buy ISA savings from Universal Credit eligibility rules.
- Support for mortgage interest will kick in more quickly than it does right now.
Sarah Coles says:
“Turning housing benefit into homes is easier said than done. So while it sounds like an attractive prospect in theory, until all the details are nailed down, we can’t assume this is going to be a game-changer.
“Boris Johnson announced that the government will explore rules on benefits so that 1.5 million people getting housing benefit can choose either to spend their benefit on rent or to put it towards a first mortgage.
“It’s certainly an interesting idea, but given that the rent is still going to need to be paid, it begs the question of how the same amount of money is going to achieve twice as much.
“The government also identified the problem that as soon as people start to build savings for a home deposit, it affects their eligibility for means tested benefits. The solution, it suggests, might include excluding Lifetime ISA and Help to Buy ISAs from Universal Credit eligibility rules.
“This would certainly make LISAs more attractive for those receiving benefits, and anyone who is concerned they may need benefits in future. However, given that the government insists that this wouldn’t mean people could sit on large savings pots while they claim benefits, it’s difficult to see how they could strike a workable balance.
“Saving for a deposit while receiving benefits is a big ask in any case, particularly at a time when benefits have risen well behind inflation, so people are having to make some incredible difficult decisions in order to make ends meet.
“Having some savings can be incredibly valuable when you’re on a low income, but if you’re receiving benefits and trying to build up small sums, the Help to Save scheme actually provides very generous savings incentives, with complete flexibility on withdrawals, so is likely to be a more sensible place to start. Then if your circumstances change, you can afford to put more cash away, and you want to save for a first property, it may make sense to move into a Lifetime ISA at that point.
“Meanwhile, plans to cut the amount of time people have to wait for support for mortgage interest could make a real difference for those who are reeling from a change in circumstances. Someone claiming Universal Credit, for example, would need to have received it for nine consecutive months before any help is available with mortgage interest. It means homeowners risk running up enormous arrears while they wait.
“Cutting the waiting time isn’t going to solve their problems, and any help through the scheme comes in the form of a loan that will eventually have to be repaid. However, it will certainly ease the pressure for anyone whose income has dropped dramatically, leaving them with nowhere to turn.”
Kindly shared by Hargreaves Lansdown
Main article photo courtesy of Pixabay
