There has been no information from DWP of the numbers likely to be coming to the end of the two- year limit to SMI as from January 2011. There are currently approximately 34,000 JSA SMI claimants, but no analysis available of how long they have been making a claim. The Impact Assessment that accompanied the 2009 changes could only note that at that time three per cent of JSA claimants had claims in excess of 104 months (two years). Lenders and key players interviewed noted that while claims of this length might be rare, the economy had worsened since then. More people than initially presumed might be affected over the coming months. (The proportion of the SMI case load that is JSA claimants rose from four per cent in January 2009 to 14 per cent in August 2010 (DWP, 2010)). Lenders indicated that they have no sense of whether any of their borrowers have or are about to lose SMI because they have reached the end of a two-year claim. Nor can they identify which benefit an SMI recipient is receiving (see Chapter 3). They simply see a lack of payment and then have to pursue the reason for this with the borrower. Few cases had yet been identified by interviewees, either lenders or advisers, although some lenders were beginning to analyse their management information to try establish the likely impact.
Only one lender had a concrete example of a borrower whose SMI had been withdrawn after two years and had referred them back to Jobcentre Plus. The others speculated about what their attitude would be, but there was a consensus that the likely outcome would be possession or another exit from homeownership.
‘We will know end of January but what do we do next? Not going to get a lot of lenders
increasing forbearance. It feels like this year or next…lenders have been forbearing but putting off the inevitable. With the two year time limit, if people have not got other income, how long is temporary? We’d probably move on to the next steps, assisted voluntary sales or identify eligibility for MRS or even repossession.’
(Building Society with mixed mortgage book)
The responses to and impact of the reduction of the SMI SIR in October 2010 and
preliminary evidence of the impact of the two year limit on SMI for some claimants
32
Another lender indicated that the time limit on JSA claimants affected what forbearance they could now offer. They were no longer willing to offer loan modifications for any claimant on JSA as JSA/SMI is an unsustainable source of income. Further:
‘If someone has been on JSA-based SMI for two years it’s unlikely they are going to get a new job and we would have a final re-examination of what exits might be available.’
Advisers believed that very few borrowers were either aware of the two-year rule in principle, or that it was now ending for some.
‘We would expect a flood of people over the next few months.’
Advisers also perceived that lenders would not be able to continue to forbear when no SMI was in place. In some cases advisers also believed that the reassessment of the two-year limit cases would have implications for lenders’ willingness to forbear on cases earlier in their SMI claim.
‘…lenders are beginning to consider a shift in their responses. They can no longer sit back and tolerate shortfalls particularly where SMI will disappear after two years and the problem grow.’
(Adviser)
‘Lenders aren’t coming forward with options on these (SMI withdrawal) cases…won’t negotiate with advice agency or the borrower. Even where the courts are sympathetic lenders are pressing for possession and 28 day orders are being given.’
(Adviser)
One key player commented:
‘Surely it will be difficult for a lender to still forbear when there is no evidence of a recovery. I can’t see that there is an awful lot that can be done. MRS would be an option for some but they’ve probably been through all the forbearance and experienced an interest rate cut and have arrears. There will not be a huge amount an adviser can do to get them out of that.’
As with the SIR reduction, the spectre of the first exits from a time limited SMI appears to be encouraging a move towards the tipping point identified earlier, although not at a uniform speed. The continuing sluggish economic conditions and the likely further impact of public sector cuts on unemployment all provide a context within which it is difficult to see how many borrowers with substantial shortfalls can recover their position. Lenders and key players recognise this and are suggesting that these assessments contribute to the change in sentiment that is already impacting on forbearance and exits from home ownership.
A small number of respondents, (mainly advisers but some lenders) raised the broader issue of the relationship between the cost of SMI and the cost of Housing Benefit that would be paid if borrowers were repossessed and moved into social housing or the private rented sector. They made the
suggestion that SMI was good value for the public purse, as well as precluding additional demand for social housing.
‘He [The Minister for Communities and Local Government] won’t save money as they’ll arrive at the local authority in six months…and the costs will fall on the government and make it expensive and detrimental to families.’
(Lender)