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Forum Home  →  Discussion  →  Housing costs  →  Thread

DWP housing costs loan

neilbateman
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One problem with the new housing costs loan from April 2018 is the fact that interest charged on them will be compounded.  So if the DWP loan is not repaid, the debt gradually worsens.  I suspect that few loans will be repaid early and some people will require substantial levels of help with their mortgages/housing costs.

I have put together a simple spreadsheet which shows the compounding effect at the current proposed interest rate of 2.61%.  It is clear that it will be adding a further mountain for some people to climb.

Can I add, that lending money at 2.61% is an attractive proposition and government may even be making money from this and of course it is setting it up for future sale to a bank.  The beginning of the introduction of loans to replace social security and the privatisation of them… 
     
  What will be owed on DWP housing costs loan  
   
Interest rate Years Amount of loan Amount owed
2.61%        1       £5,000.00       £5,130.50
2.61%        2       £5,000.00       £5,264.41
2.61%        5       £5,000.00       £5,687.46
2.61%        7       £5,000.00       £5,988.22
2.61%        10       £5,000.00       £6,469.44
2.61%        12       £5,000.00       £6,811.55
2.61%        15       £5,000.00       £7,358.94
2.61%        17       £5,000.00       £7,748.09
2.61%        20       £5,000.00       £8,370.74
2.61%        25       £5,000.00       £9,521.65
 

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Gareth Morgan
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The 2.61% rate is the amount of the payments to the lender, matching the current SMI rate.  The rate charged to the borrower is set by the OBR forecast of weighted gilt rates.  Their next forecast will be set with today’s budget but would currently be 1.7%.

neilbateman
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DWP Operation Stakeholders have been informed by DWP that the rate will be 2.61%.  1.7% would leave many claimants desperately short.

Gareth Morgan
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The figures are compounded monthly so the repayments, on the £2.51 a week current loan payment, would be

Charge and interest Total recoverable
 
 
Year 1 £1.21 £131.71
Year 2 £4.67 £265.67
Year 3 £10.43 £401.93
Year 4 £18.53 £540.53
Year 5 £29.00 £681.50
Year 6 £41.88 £824.88
Year 7 £57.22 £970.72
Year 8 £75.06 £1,119.06
Year 9 £95.44 £1,269.94
Year 10 £118.41 £1,423.41
Year 11 £144.00 £1,579.50
Year 12 £172.27 £1,738.27
Year 13 £203.26 £1,899.76
Year 14 £237.02 £2,064.02
Year 15 £273.59 £2,231.09
Year 16 £313.02 £2,401.02
Year 17 £355.37 £2,573.87
Year 18 £400.67 £2,749.67
Year 19 £448.99 £2,928.49
Year 20 £500.37 £3,110.37
Year 21 £554.87 £3,295.37
Year 22 £612.54 £3,483.54
Year 23 £673.43 £3,674.93
Year 24 £737.60 £3,869.60
Year 25 £805.11 £4,067.61

neilbateman
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I’m not sure where you get £2.51 per week from. 

I’m happy to be corrected, but monthly compounding would increase the amount owed?

My calculation, assumed that the total loan from DWP was £5,000 - not an unreasonable amount. Just over a year’s interest on a mortgage of £150,000 .

Gareth Morgan
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Sorry Neil, I read that as a mortgage of £5,000.  On a £150,000 mortgage (substantial given that the average mortgage amount for pensioner loans is about £40,000 and for working age about £80,000) the figures would be :

Charge and interest Total recoverable
 
 
Year 1 £36.24 £3,951.24
Year 2 £140.17 £7,970.17
Year 3 £312.97 £12,057.97
Year 4 £555.79 £16,215.79
Year 5 £869.86 £20,444.86
Year 6 £1,256.38 £24,746.38
Year 7 £1,716.60 £29,121.60
Year 8 £2,251.78 £33,571.78
Year 9 £2,863.21 £38,098.21
Year 10 £3,552.19 £42,702.19
Year 11 £4,320.05 £47,385.05
Year 12 £5,168.14 £52,148.14
Year 13 £6,097.84 £56,992.84
Year 14 £7,110.54 £61,920.54
Year 15 £8,207.67 £66,932.67
Year 16 £9,390.67 £72,030.67
Year 17 £10,661.01 £77,216.01
Year 18 £12,020.20 £82,490.20
Year 19 £13,469.75 £87,854.75
Year 20 £15,011.21 £93,311.21
Year 21 £16,646.16 £98,861.16
Year 22 £18,376.20 £104,506.20
Year 23 £20,202.95 £110,247.95
Year 24 £22,128.07 £116,088.07
Year 25 £24,153.26 £122,028.26

[ Edited: 22 Nov 2017 at 10:15 am by Gareth Morgan ]
Gareth Morgan
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Sorry Neil, I read that as a mortgage of £5,000.  On a £150,000 mortgage (substantial given that the average mortgage amount for loans is about £40,000 and for working age about £80,000) the figures would be :

Charge and interest Total recoverable
 
 
Year 1 £36.24 £3,951.24
Year 2 £140.17 £7,970.17
Year 3 £312.97 £12,057.97
Year 4 £555.79 £16,215.79
Year 5 £869.86 £20,444.86
Year 6 £1,256.38 £24,746.38
Year 7 £1,716.60 £29,121.60
Year 8 £2,251.78 £33,571.78
Year 9 £2,863.21 £38,098.21
Year 10 £3,552.19 £42,702.19
Year 11 £4,320.05 £47,385.05
Year 12 £5,168.14 £52,148.14
Year 13 £6,097.84 £56,992.84
Year 14 £7,110.54 £61,920.54
Year 15 £8,207.67 £66,932.67
Year 16 £9,390.67 £72,030.67
Year 17 £10,661.01 £77,216.01
Year 18 £12,020.20 £82,490.20
Year 19 £13,469.75 £87,854.75
Year 20 £15,011.21 £93,311.21
Year 21 £16,646.16 £98,861.16
Year 22 £18,376.20 £104,506.20
Year 23 £20,202.95 £110,247.95
Year 24 £22,128.07 £116,088.07
Year 25 £24,153.26 £122,028.26