How we work out housing costs
- Who can get help with housing costs?
- Non dependants at home
- Temporary absence from home
- More than one home
- Mortgages taken out to purchase the home and certain home improvement loans
- Restrictions
- High housing costs
- Standard rate of interest
- Interest on loans for repairs and improvements
- Hire purchase interest
Who can get help with housing costs?
Your customer will be able to get an extra amount for housing costs if:
- they or their partner are liable to pay housing costs to live in their home, or
- someone else is normally liable to pay housing costs (such as a former partner) but because they are no longer paying them, your customer or their partner now has to.
Non-dependants at home
Your customer’s Pension Credit may be affected if they have non-dependants living in their home as these people will be expected to contribute towards some of the housing costs. Standard deductions are based on their age and circumstances.
(definition of non-dependants).
Temporary absence from home
If your customer is temporarily absent from their usual home they may still be able to get an extra amount for housing costs.
More than one home
These extra amounts for housing costs are usually only paid for one home but there are some exceptions (More than one home).
Mortgages taken out to purchase the home and certain home improvement loans
Mortgage interest
If your customer has a mortgage or a loan taken out to buy their home, the extra amount for housing costs will include help with the interest payments.
Pension Credit will not help with:
- repayments of capital,
- the premiums of any endowment or pension policy linked to the loan.
Pension Credit can only help with the interest on loans for:
- ‘acquiring an interest in a home’
- financing certain essential repairs or improvements to the existing dwelling,
- repaying loans that were used for either of the above.
Where a mortgage is taken out partly for another purpose, such as buying a car or as a business loan, the extra amount for housing costs will include interest only on the part of the loan used to buy or repair your customer’s home.
A replacement mortgage will only be met to the same level as the original mortgage. For example, if the new mortgage or loan was used partly to clear debts or to replace another loan which was not previously paid off, the extra amount would not include interest on that part of the new mortgage or loan. See the leaflet for home owners for more information on help with housing costs.
Restrictions
£100,000 capital limit and exceptions
If the outstanding capital on your customer’s loan, or loans, is more than £100,000 then only the interest on £100,000 can be included in the extra amount[Reference 6]. This limit does not apply if the loan was taken out and used, in full or part, to adapt their home for the special needs of a disabled person. [Reference 7]
From 5 January 2009, entitlement to housing costs on capital up to £200,000 for those in receipt of Income Support, Jobseeker’s Allowance or Employment and Support Allowance prior to pension age that transfer to Pension Credit will be protected.
These customers will continue to receive assistance with housing costs up to £200,000 for as long as they remain entitled to Pension Credit, as long as they claim Pension Credit within 12 weeks of leaving Income Support, Jobseeker’s Allowance or Employment and Support Allowance.
Loans taken out while in receipt of Pension Credit
The help your customer can get with interest payments may be restricted if they take out a new loan while they are getting Pension Credit (for example, if they move home). Generally, your customer will get no more help with housing costs than they were getting before they took out the new loan.
If your customer is getting Pension Credit and Housing Benefit and they take out a new loan to buy a home (either the property they were formerly renting or a different property), the amount of help your customer can get with their new housing costs will be no more than the amount of Housing Benefit they were getting when they were renting. However, the amount they get could be increased later (for example, if interest rates go up).
These rules may also affect your customer if they apply for Pension Credit after they take out the new loan, but want their Pension Credit to start from a date before they took out the loan.
These rules may not affect your customer if the loan was for essential repairs and improvements to their existing home or if they moved to:
- meet the special needs of a disabled person, or
- provide separate sleeping accommodation for children of different sexes who are aged 10 or over.
The upper limit for help towards the interest on loans of up to £100,000 will still apply in these cases, apart from where the loan was taken out and used, in full or in part, to adapt their existing home to meet the special needs of a disabled person. (Restrictions – see High housing costs section below).
High housing costs
We may decide that your customer’s housing costs are too high if:
- their home is larger than is needed for the people living in it
- their home is in a very expensive area, or
- their housing costs, such as mortgage interest, are higher than the cost of other suitable accommodation in the area.
To make our decision about whether housing costs are too high, we look at:
- suitable accommodation and housing costs in the area
- the circumstances of everyone living in the house, including their ages and state of health and the effect of a change of home on the education of anyone under 20, and
- whether your customer was able to meet the costs of their home when they moved in. If they were, the costs cannot be ruled too high for the first six months after they start getting Pension Credit, and possibly not for the next six months.
If it is decided that your customer’s housing costs are too high, restrictions will be imposed. If, on the other hand, your customer’s housing costs are considered reasonable, your customer’s benefit will not be affected.
Standard rate of interest
We use a standard rate of interest.
The method of calculating the standard interest rate changed from 1 October 2010. It is set at a level equal to the Bank of England’s published monthly average mortgage interest rate. This rate is based on information from around 30 banks and building societies. It covers over 75% of all banks’ and building societies’ mortgage business and is a weighted average of all existing loans to households secured on dwellings in the sample.
Any subsequent changes to the standard interest rate will only occur when the Bank of England average mortgage rate differs by 0.5% or more from the standard interest rate.
The change came into effect on 1 October 2010. It is based on the average mortgage rate published on 31 August which was 3.63%.
You can get more details about the standard interest rate in the Directgov article on getting help with your mortgage interest payments.
Interest on loans for repairs and improvements
The extra amount for housing costs can include help with the interest on loans taken out and used to make necessary repairs and improvements. The amount of help towards the eligible mortgage interest is calculated in the same way as for the loan taken out to purchase the property.
This is a list of all eligible repairs and improvements:
- provision of a fixed bath, shower, wash basin, sink or lavatory, and associated plumbing, including hot water not connected to a central heating system
- repairs to an existing heating system
- damp-proofing
- providing ventilation and natural lighting
- providing drainage facilities
- providing facilities to prepare and cook food
- providing insulation
- providing electric lighting and sockets
- providing storage for fuel or refuse
- repairing unsafe structural defects
- adapting the existing home for the special needs of a disabled person,
- providing separate sleeping accommodation for persons of different sexes aged 10 or over but under 20 who live with the customer and for whom the customer or their partner are responsible.
Hire purchase interest
For customers buying their home by hire purchase, the extra amount for housing costs will include help with the interest payments. This will be worked out in the same way as with mortgage interest.
