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Support for mortgage interest
IWhat about GPC? Should this be recoverable out of the estate when they die?
The loans are recoverable upon the death of the person who had claimed PCGC and received SMI payments. See reg.16(1)(c) of the SMI regulations.
I am concerned that the information book does not mention this explicitly and will be following up with DWP.
This also, in the case of couples, makes the repayment subject to the death of the second person.
I want to dig a little more into the consequences of this in some outlying cases. For example, the partner has no ongoing entitlement to PC, is found later to have no beneficial interest in the property. What happens if only part of the property passes to the partner, what if title passes to someone else but the partner continues to live there? etc. etc.
[ Edited: 21 Aug 2017 at 12:25 pm by Gareth Morgan ]This also, in the case of couples, makes the repayment subject to the death of the second person.
I want to dig a little more into the consequences of this in some outlying cases. For example, the partner has no ongoing entitlement to PC, is found later to have no beneficial interest in the property. What happens if only part of the property passes to the partner, what if title passes to someone else but the partner continues to live there? etc. etc.
My thoughts exactly
I have two cases that will cause problems for the DWP.
1. Husband & wife live in their home, but only the wife actually owns it. She is the only person shown on the deeds. They have a joint GPC award. Husband signed away all his current and future rights of the property to his wife when she bought it in 2003.
If she died first her will dictates that the property will go into trust for their two children and that her husband has a right of occupation only until his death.
2. Husband & wife in their own home. The deeds show both husband & wife. The property was purchased in 1990 for £489,500. They obtained an interest only mortgage for £100,000 with the balance coming from a discretionary trust. The beneficiaries of that trust are husband & wife with the trustees being their two daughters.
The trust has a second charge on the property for the original £389,500 and interest at 5% compound annually is being applied. The second charge is currently valued at approx. £1.5m and the first charge is valued at £100,000. The property is currently valued at £1.1m
The ultimate aim on death or earlier of both is for the trust to settle the small mortgage thereby owning the whole property for the benefit of the children/grandchildren.
1. Husband & wife live in their home, but only the wife actually owns it. She is the only person shown on the deeds. They have a joint GPC award. Husband signed away all his current and future rights of the property to his wife when she bought it in 2003.
If she died first her will dictates that the property will go into trust for their two children and that her husband has a right of occupation only until his death.
Might not actually be as complicated as you think?
Reg.4 states offer of loan payments is accepted whereby loan agreement signed by claimant and the partner.
Reg.5 details conditions to be met before loan payments can be made. 5(1)(a) says loan payment must be accepted in accordance with reg.4 so as long as they both sign, that’s fine.
Reg.5(2)(a)(i) states where all legal owners are within benefit unit, each legal owner executes charge on property byway of legal mortgage in favour of SoS. So only wife needs to place charge on property as she is the legal owner.
She dies and regardless of the will, he can stay there under reg.16(1)(c) as this stipulates repayment occurs following death of last member of benefit unit i.e. the husband (or the “relevant person” as the reg details it). Legal ownership passes to the children under the terms of her will.
When husband dies, reg.16(2)(c) states that in this instance, repayment shall occur from the “relevant person’s” estate.
As husband hasn’t owned property since wife signed over whole property to herself, his estate does not include the value of the property, so the second charge placed upon the home has no effect when he dies - her estate would already have been settled in most cases so I can’t see how they could recover in such a case.
So this effects everyone who currently receives SMI, this will change into a loan from 06/04/18? I take it this even includes those who receive SMI but live in a part rent/part buy property? Jules
I have seen the point raised, by the NHF, but not noticed any exceptions put in place for shared ownership (anyone?)
From: http://researchbriefings.files.parliament.uk/documents/SN06618/SN06618.pdf
The National Housing Federation felt that while it was appropriate for the Government to consider ways of recouping the cost of SMI to the taxpayer, it was far from certain that a charge on the property represented the easiest and most equitable way of achieving this. It also argued that, when considering the appropriate form of assistance to provide, it was important to distinguish between those who required temporary assistance with housing needs and those with long-term disabilities who used SMI to purchase a home through shared ownership schemes such as HOLD [Home Ownership for people with Long-term Disabilities]. It did not regard it appropriate to impose a charge in the latter.
... reg.16(1)(c) as this stipulates repayment occurs following death of last member of benefit unit i.e. the husband (or the “relevant person” as the reg details it).
The wording is “in the case of a claimant with no partner, the claimant’s death, or, in the case of a claimant with a partner, the death of the last member of the benefit unit (“the relevant person”)”.
What happens if, following the death of the claimant, the partner is no longer entitled to Pension Credit? They are not then ‘a member of the benefits unit’. This could easily happen if, for example, an insurance policy pays out.
The wording is “in the case of a claimant with no partner, the claimant’s death, or, in the case of a claimant with a partner, the death of the last member of the benefit unit (“the relevant person”)”.
What happens if, following the death of the claimant, the partner is no longer entitled to Pension Credit? They are not then ‘a member of the benefits unit’. This could easily happen if, for example, an insurance policy pays out.
In the case, above, it would have no effect whatsoever, as the surviving partner wouldn’t qualify for SMI payments as he wouldn’t be the legal owner, so entitlement to PC doesn’t affect the situation. Although there would be a mortgage still outstanding unless they had an insurance policy to pay it off - I’m not sure whether that’s something that is possible with interest-only mortgages but on a standard mortgage, I think you have to have life insurance as part of taking the loan out.
Of course, that would be a very different story for a couple who were both legal owners of a property. This is the problem - there are so many variables and what if’s and as was demonstrated at the recent NAWRA meeting, property law is a very complex area in and of itself.
Although there would be a mortgage still outstanding unless they had an insurance policy to pay it off - I’m not sure whether that’s something that is possible with interest-only mortgages .
that was the way interest only mortgages worked - there was also a policy which paid out at term, supposedly at least the capital amount plus whatever else had been earned. but those largely went pear shaped with financial crash and people ended up with policies producing much less than the capital amount o/s
In the case, above, it would have no effect whatsoever, as the surviving partner wouldn’t qualify for SMI payments as he wouldn’t be the legal owner, .
I was thinking of the case where the partner was the legal owner and got e.g. £20k insurance, therefore losing entitlement to Pension Credit but still having a £100k mortgage. In order to reclaim Pension Credit he’d have to reduce the capital, probably by paying off some of the mortgage, but in the interim woukd DWP demand repayment or would he escape by being a surviving partner even if not in the benefit unit?
I was thinking of the case where the partner was the legal owner and got e.g. £20k insurance, therefore losing entitlement to Pension Credit but still having a £100k mortgage. In order to reclaim Pension Credit he’d have to reduce the capital, probably by paying off some of the mortgage, but in the interim woukd DWP demand repayment or would he escape by being a surviving partner even if not in the benefit unit?
I think the wording of the regulation is such that, at the point of the first partner passing away, the other partner is still part of the benefit unit, therefore it’s the surviving partner’s death that triggers repayment in that situation. Even from a practical perspective, such an insurance payment is likely to take a few weeks to come through, so PC entitlement would be likely to continue in the interim.
However, I am concerned that the interpretation reg definition of “charge by way of legal mortgage” does give DWP the power to force a sale. The charge is defined by reference to section 132(1) of the Land Registration Act 2012.
This in turn provides that “charge” means any mortgage, charge or lien for securing money or money’s worth and “legal mortgage” has the same meaning as in the Law of Property Act 1925.
Section 87(1) of the Law of Property Act 1925 provides that (my emphasis):
(1)Where a legal mortgage of land is created by a charge by deed expressed to be by way of legal mortgage, the mortgagee shall have the same protection, powers and remedies (including the right to take proceedings to obtain possession from the occupiers and the persons in receipt of rents and profits, or any of them) ...
So even though they’ve been very keen to emphasise that they’ll only recover when there is sufficient equity in the property (which isn’t as benign as it sounds anyway, for reasons noted above), it’s also the case that where they think there has been a relevant transfer, assignment, etc that shoudl trigger repayment, then they can go to court in order for obtain possession and force a sale.
think the wording of the regulation is such that, at the point of the first partner passing away, the other partner is still part of the benefit unit, therefore it’s the surviving partner’s death that triggers repayment in that situation. Even from a practical perspective, such an insurance payment is likely to take a few weeks to come through, so PC entitlement would be likely to continue in the interim.
I’ll keep digging my hole. What if as a couple they had a small entitlement to PC because of the income of the surviving member but too much income for a single person. PC, as a weekly benefit, should stop immediately. Does he then get an immediate demand for repayment?
... reg.16(1)(c) as this stipulates repayment occurs following death of last member of benefit unit i.e. the husband (or the “relevant person” as the reg details it).
The wording is “in the case of a claimant with no partner, the claimant’s death, or, in the case of a claimant with a partner, the death of the last member of the benefit unit (“the relevant person”)”.
What happens if, following the death of the claimant, the partner is no longer entitled to Pension Credit? They are not then ‘a member of the benefits unit’. This could easily happen if, for example, an insurance policy pays out.
In case number 1, a discretionary trust was already set up so as to avoid any awkward questions being raised by the local authority should care facilities be required in the future. The options to settle the mortgage at any time are that the children would settle the mortgage between them OR, if more appropriate, the trust currently has £142,000 which could be used instead.
I’ll keep digging my hole. What if as a couple they had a small entitlement to PC because of the income of the surviving member but too much income for a single person. PC, as a weekly benefit, should stop immediately. Does he then get an immediate demand for repayment?
As above, no. They are a “benefit unit” on the day the person dies so reg.16(1)(c) states it’s the passing of the surving partner that triggers repayment, and on the day after the person’s demise, the surviving partner is no longer part of a “benefit unit” but that’s by the by, the provisions of the regulation prevent immediate repayment imvho.
I was thinking of the case where the partner was the legal owner and got e.g. £20k insurance, therefore losing entitlement to Pension Credit but still having a £100k mortgage. In order to reclaim Pension Credit he’d have to reduce the capital, probably by paying off some of the mortgage, but in the interim woukd DWP demand repayment or would he escape by being a surviving partner even if not in the benefit unit?
I think the wording of the regulation is such that, at the point of the first partner passing away, the other partner is still part of the benefit unit, therefore it’s the surviving partner’s death that triggers repayment in that situation. Even from a practical perspective, such an insurance payment is likely to take a few weeks to come through, so PC entitlement would be likely to continue in the interim.
However, I am concerned that the interpretation reg definition of “charge by way of legal mortgage” does give DWP the power to force a sale. The charge is defined by reference to section 132(1) of the Land Registration Act 2012.
This in turn provides that “charge” means any mortgage, charge or lien for securing money or money’s worth and “legal mortgage” has the same meaning as in the Law of Property Act 1925.
Section 87(1) of the Law of Property Act 1925 provides that (my emphasis):
(1)Where a legal mortgage of land is created by a charge by deed expressed to be by way of legal mortgage, the mortgagee shall have the same protection, powers and remedies (including the right to take proceedings to obtain possession from the occupiers and the persons in receipt of rents and profits, or any of them) ...
So even though they’ve been very keen to emphasise that they’ll only recover when there is sufficient equity in the property (which isn’t as benign as it sounds anyway, for reasons noted above), it’s also the case that where they think there has been a relevant transfer, assignment, etc that shoudl trigger repayment, then they can go to court in order for obtain possession and force a sale.
Which if that is accepted will be the case, yes in case 1, the SOS decides that there has been a ‘transfer’ on the death of wife they could seek possession of the property which would be the home of the husband?
The husband is not party to the asset and has no power to assign a charge, but was a party to the GPC award.
I would take it one step further that if the husband cannot permit a charge to be placed against the property what is the purpose of asking him to agree to SMI being a loan. Surely it would be for the ‘owner’ of the property to give that agreement alone.
In the case in question the joint GPC entitlement would cease immediately on the death of wife and as husband has an income well above the single limit, no further GPC claim would be made.
[ Edited: 22 Aug 2017 at 11:29 am by Oldestrocker ]Which if that is accepted will be the case, yes in case 1, the SOS decides that there has been a ‘transfer’ on the death of wife they could seek possession of the property which would be the home of the husband?
The husband is not party to the asset and has no power to assign a charge, but was a party to the GPC award.I would take it one step further that if the husband cannot permit a charge to be placed against the property what is the purpose of asking him to agree to SMI being a loan. Surely it would be for the ‘owner’ of the property to give that agreement alone.
In the case in question the joint GPC entitlement would cease immediately on the death of wife and as husband has an income well above the single limit, no further GPC claim would be made.
Reg.16(1)(b) provides for immediate repayment upon transfer, assignment or otherwise disposed of, unless para.(c) applies, so the death of the wife and the fact of the husband surviving precludes that happening.
As for your question about “why?”, that is such an existential issue in benefit terms that I doubt anyone knows why….more seriously, I would imagine the necessity of both parties to the claim signing is that, in other cases of joint ownership for example, it would be important to try to ensure both parties to the claim are aware and agreed to what is taking place in terms of taking out the loan.