R McCullough

Request [email address]

Annex A

Annex A

Dear Ms McCullough

Thank you for your Freedom of Information request received on 22 February. You asked :-

“What do “housing costs” consist of when applying for Pension Credits.

How is this figure arrived at?

What does it consist of?

What is included in housing costs?”

The definition of “housing costs” depends on the type of accommodation that is occupied. Housing Benefit is available to people who live in “rented” accommodation while a scheme called “support for mortgage interest” is available to owner occupiers. It is not clear from your request which of these schemes you are interested in and so I will deal with both.

In order to qualify for Housing Benefit a person must have a legally enforceable liability to pay rent on the dwelling they occupy as their home.

Local authorities are responsible for the determination and administration of Housing Benefit. This is an income-related benefit and is calculated depending on a person's income, savings, age, size of family, whether anyone else lives in the household, whether they have any illness or disabilities; what is a reasonable level of rent is for the size and location of the accommodation, how much the rent liability is and what it includes for the accommodation where they live. It is also available to people on a low income as well as those in receipt of benefit.

Housing Benefit is calculated by comparing a person's net income with an applicable amount, which is intended to cover day to day living expenses, taking account the size and make up of the household.

If a person's income is below or equal to the applicable amount, they normally receive the maximum available help towards their rent. However this would be subject to any deductions for non-dependants living in the household, ineligible service charges or restrictions on the property due to the size or location. People in receipt of an income-related benefit such as guarantee element of State Pension Credit would receive the maximum help towards their rent.

The Housing Benefit (HB) scheme is designed to help those on a low income pay a reasonable rent for their home. However, the Government also needs to take into account that it would not be reasonable for the tax-payer to subsidise in full those rents paid on properties that are more expensive than suitable accommodation available locally or larger than the person reasonably needs.

The yardstick for a reasonable rent within the calculation of Housing Benefit is, in effect, the market rent for an appropriately sized property for the tenant and their household. As local authority and registered social landlords usually set their rents at below market levels their tenants usually have their rent met in full. No restriction is usually put on the amount of their rent that is eligible for benefit, even where a tenant is over accommodated.

This is because the rent levels of local authorities, Registered Social Landlords and certain other prescribed tenancies are either regulated, or in some other way controlled, often through subsidy, so as to be lower than the market rent. Rents charged by private landlords are not subject to such control and are therefore subject to Rent Officer determinations in the calculation of benefit and thereby restricted to a comparable open market rent, which tend to be higher as they would include an element of profit.

The amount of help available with a private sector tenant's rent is usually decided by the Local Housing Allowance which is based on a median of a range of rents within a Broad Rental Market Area (BRMA). This is a broad geographical area set by the rent services which has regard to facilities for health, education, recreation, personal banking, and shopping, taking into account distance by personal and private transport. The BRMA will contain a variety of types of residential accommodation let on a variety of tenancies.

However, this is only possible where there is an active rental market in any particular type of accommodation. Where the rental market in some properties is commonly either very small or non existent the decision was made to exclude those tenants from the LHA and for them to remain subject to the previous scheme where a rent might also be met in full where it is considered reasonable. This scheme was based on rent officer determinations of a reasonable rent for an individual property and is still relevant to all those who claimed benefit before the introduction of the LHA in April 2008.

Turning to the assistance available to owner occupiers, in order to receive help with their mortgage interest, owner occupiers first have to satisfy the qualifying conditions for one of the income-related benefits such as State Pension Credit. Help is provided towards the interest on mortgages (known as Support for Mortgage Interest (SMI)) which is paid as part of State Pension Credit.

The current system makes a contribution towards the eligible interest on loans taken out to purchase the property and specific loans for repairs and improvements which are necessary to maintain the home's fitness for habitation.

A person's eligible mortgage interest is calculated using a standard interest rate (currently 6.08%) and the capital balance (not including arrears) outstanding on the loan

taken out to purchase the home, and for certain loans for repairs and improvements.

SMI does not cover all of a person's housing liabilities. No help is provided towards mortgage capital repayments, endowment or insurance premiums or arrears.

Help can be provided for other housing costs such as ground rent paid under a long tenancy and some specified service charges.

Section 21 of the Freedom of Information Act allows us to direct you to information which is already reasonably accessible to you. The information you requested is available on the Department's website www.dwp.gov.uk ;

Direct Gov www.direct.gov.uk ; and the Office of Public Sector Information www.opsi.gov.uk or from the Stationery Office. If you do not have access to the Internet at home, you may be able to use facilities at your local public library. However in the interests of customer service I enclose links to the relevant information in the annex to this letter.

If you have any queries about this letter please contact me quoting the reference number above.

Yours sincerely

DWP Central FoI Team

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Your right to complain under the Freedom of Information Act

If you are not happy with this response you may request an internal review by e-mailing [DWP request email] or by writing to DWP, Central FoI Team, 5th Floor The Adelphi, 1-11, John Adam Street, London WC2N 6HT. Any review request should be submitted within two months of the date of this letter.

If you are not content with the outcome of the internal review you may apply directly to the Information Commissioner's Office for a decision. Generally the Commissioner cannot make a decision unless you have exhausted our own complaints procedure. The Information Commissioner can be contacted at: The Information Commissioner's Office, Wycliffe House, Water Lane, Wilmslow Cheshire SK9 5AF www.ico.gov.uk

DWP Central Freedom of Information Team

e-mail: [DWP request email]

Our Ref: VTR 500

11 March 2010