Dorset Council at fault for failing to consider ‘support for mortgage interest’ (SMI) issues properly in a financial assessment

Decision Date: 10th February 2020

What Happened

Mrs B complained on behalf of Ms C, as deputy for her property and financial affairs.

Ms C lived in a bungalow and had 24 hour care funded by the Council. The bungalow was a shared ownership property partly owned by a housing association. Ms C’s 50% share was covered by a mortgage company sponsored by the government.

Ms C paid rent to the housing association, and interest towards the mortgage.

Up until March 2018, the rent was paid through housing benefits and the Department for Work and Pensions (DWP) paid the interest. After which, the government stopped paying the interest, and introduced ‘support for mortgage interest’ (SMI) (effectively a loan from the DWP to help pay your mortgage).

Mrs B did not apply for an SMI at that time. She stated she was unable to apply for an SMI loan as Ms C’s deputy but would instead need approval from the Court of Protection. She was also reluctant to make any application that would increase Ms C’s debts.

Instead, she started to pay the interest with Ms C’s benefits. As a result, Ms C’s housing costs went up, and Mrs B expected that Ms C’s contribution for her social care charges would therefore go down.

However Ms C’s next financial assessment included the SMI she could have claimed as ‘notional income’, which meant her contribution stayed the same.

Notional income is income that a person doesn’t actually have. For example income a person has deliberately deprived themselves of, or income available on application.

Mrs B complained to the Council for not including Ms C’s interest payments as a housing cost.

The Council replied stating Ms C ‘was effectively failing to claim a benefit which she is entitled to and under the Care Act 2014, she can be treated as claiming an income, even when her representative chooses not to claim the benefit.’ It said Mrs B was ‘effectively asking the tax payer to meet the cost of the mortgage payments’, and asked for proof from the CoP that she could not enter into an SMI loan.

In contact with the LGO, the CoP stated:

  • Mrs B did not have the authority to take out the SMI loan in Ms C’s name under the current court order. She would have needed to make a new application to the CoP for permission.
  • Its legal team did not feel that the SMI loan should be construed as a benefit as a benefit was not repaid, whereas a loan would have to be. However it was for the DWP to give the definitive answer.

A legal adviser also agreed that SMI was probably not a benefit but a loan. He said that, unfortunately, the guidance and regulations were silent on the issue of SMI as they were written before the introduction of SMI and there had been no case law on the issue so far.

What was found

The LGO highlighted that the Council’s main reason for treating the failure to apply for an SMI as notional income, was because SMI was considered a benefit. The LGO concluded that an SMI was a loan, therefore it was a deferred liability, not a benefit.

The LGO stated that whether failing to apply for an SMI could be considered as notional income was a grey area, and that the Council failed to address this sufficiently in their financial assessment.

Furthermore, to determine notional income, you must be certain that the application would be a success. The LGO considered that there was no certainty in this case, because Ms C couldn’t apply for herself as she lacked capacity, and it was not certain what the CoP would decide, if Mrs B applied.

All in all there was fault in how the Council considered the SMI during its financial assessment.

The LGO said that ‘as the law and guidance are unclear and open to interpretation, it seems sensible that the Council should form a policy position on this, to aid consistent decision making’.

It recommended that the Council refund Ms C’s charges based on treating the interest payments as spending that could have been covered by SMI until the point it has formulated a policy on SMI and reassessed Ms C’s finances.

Points for the public, service users, deputies, attorneys, appointees, charging officers etc

Notional income is a grey area for charging purposes, especially when it comes to benefits. Most councils’ charging policies will treat a person as getting whatever the are entitled to, and deem people as likely to be successful, and the welfare benefits adviser will seek to maximise income – for the benefit of the council as much as anyone else, it must sometimes seem

We think that there is a public policy against allowing a council to treat people as effectively obliged to claim whatever might be available to them in benefits, because it is a question of personal decision-making and not unusual for people to be very against relying on the state. That is the beauty of social care being a service, not a benefit; people can sometimes feel better about accepting services, if they are reluctant to just take money.

It seems to us to have been a daft argument that not claiming was equivalent to asking the taxpayer to fund the person’s services; claiming the money to pay the interest would have amounted to just as much contribution from The Taxpayer as getting further subsidised for the cost of social care services. The point was that it would have sucked money from one public purse into another one – the council’s – and that the council did not want to be the worse off. But a person’s ordinary income benefits or GRANTS (the ones used here to pay the interest on the mortgage) are indeed their own money, and are able to be spent on housing costs, which do have to be allowed for, in the financial assessment.

This deputy took her responsibilities seriously and could not be made to conclude that it was in the person’s best interests to make an application for permission. The point that SMI is clearly a loan and not a benefit (it is secured by a charge on the property in favour of the DWP Secretary of State).

“Voluntary payments of a minimum of £100 (unless the outstanding balance is less) can be made at any time. Repayments will normally be made from the proceeds of any sale, transfer, assignment or disposition, or from the estate of the deceased person. Where there is not sufficient equity in a property, repayment will be limited to the amount available after any prior ranking charges against the property have been repaid.”

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The full Local Government Ombudsman report of Dorset County Council’s actions can be found here