Income Support: Mortgages

Work and Pensions written question – answered on 22nd October 2008.

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Photo of Chris Grayling Chris Grayling Shadow Secretary of State for Work and Pensions

To ask the Secretary of State for Work and Pensions

(1) at what interest rate income support mortgage interest rate payments are being made; and at what rate income support mortgage interest payments were paid in each of the last 10 years for which information is available;

(2) how often the interest rate for income support mortgage interest payments is set;

(3) at what level the interest rate for income support mortgage interest payments was set in each month for the last two years;

(4) on what basis the interest rate for income support mortgage interest payments is set.

Photo of Kitty Ussher Kitty Ussher Parliamentary Under-Secretary, Department for Work and Pensions

From December 2004, the standard interest rate (SIR) used to calculate support for mortgage interest payments in income support, income-based jobseeker's allowance and state pension credit was changed to respond to changes in the Bank of England base rate. The SIR is the Bank of England base rate plus an additional 1.58 per cent. This is more representative, transparent, easier to understand and easier to administer than the previous method, which was based upon an average of building society interest rates. The additional 1.58 per cent. recognises the fact that lenders' interest rates are set at a higher rate than the base rate and to ensure that no-one lost out when the method of calculation changed.

DWP no longer needs to wait for the collation of statistics by the Financial Services Authority and the official publication by the Office for National Statistics of the average building society interest rate. Nor does it need to lay regulations to change the SIR. As soon as the Bank of England announces a change which triggers a move in the SIR, action is taken to amend the relevant departmental computer systems. This has reduced the implementation time by approximately four weeks compared to the pre-December 2004 arrangements. Changes are normally implemented in about five weeks from the Bank of England's announcement.

The SIR is currently 6.58 per cent. The Bank of England announced a 0.5 per cent. cut in the base rate on 8 October. This will mean that the SIR will reduce to 6.08 per cent. in about five weeks' time.

The information requested is in the table.

Support for mortgage interest: standard interest rate (SIR) changes since 1998
Payable date SIR (percentage)
31 May 1998 8.34
27 December 1998 8.65
28 February 1999 8.24
28 March 1999 7.75
25 April 1999 7.39
16 May 1999 7.08
27 June 1999 6.66
23 April 2000 6.92
25 June 2000 7.44
24 June 2001 6.94
26 August 2001 6.65
23 December 2001 6.19
24 February 2002 5.74
24 March 2002 5.34
23 November 2003 5.07
28 March 2004 5.33
25 July 2004 5.59
26 September 2004 5.88
5 December 2004 6.33
11 September 2005 6.08
10 September 2006 6.33
17 December 2006 6.58
18 February 2007 6.83
17 June 2007 7.08
12 August 2007 7.33
13 January 2008 7.08
16 March 2008 6.83
18 Mary 2008 6.58
Note:

From 5 December 2004, the SIR has been calculated using the Bank of England base rate plus 1.58 per cent. Prior to that, it was based upon an average of building society interest rates.

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