R(IS) 8/94

Mr. V. G. H. Hallet	CIS/574/1992
31.3.93
Housing costs - mortgage used to purchase accommodation previously rented - restriction of eligible interest
On 30 October 1989, whilst in receipt of income support, the claimant purchased her home which had previously been rented from the Local Authority. Interest payable on the loan of £14,385 used to purchase the home was calculated under paragraph 7(4) of Schedule 3 to the Income Support (General) Regulations 1987 to be £28.01. The adjudication officer restricted this amount under paragraph 10(1) of Schedule 3 to £14.65, the amount of the eligible rent immediately before the date of purchase. The housing costs payable were increased as the interest rate on the loan increased until on 1 March 1990 they were £18.60. When interest rates fell the housing costs were reduced until on   1 August 1991 they were £11.44. The claimant appealed to the social security appeal tribunal which upheld the adjudication officer’s decision to reduce the amount of housing costs payable. The claimant appealed to a social security Commissioner.
Held that:
1.	there is no provision in paragraph 10(1) of Schedule 3 to the Income Support (General) Regulations 1987 to reduce the restricted housing costs on a reduction to the interest rate (para. 14);
2.	when the eligible interest calculated under paragraph 7(4) of Schedule 3 falls below the restricted amount then the amount payable will be the eligible interest (para. 25);
3. 	no regard should be had to any changes to the rent that may have taken place on the home after the date of purchase (para. 17).

DECISION OF THE SOCIAL SECURITY COMMISSIONER

Decision
1.	This claimant’s appeal succeeds. My decision is that the decision of the social security appeal tribunal dated 6 May 1992 is erroneous in law. I set it aside, and since it is expedient to do so, I give my own decision which is that the claimant is entitled to an applicable amount for housing costs of £18.60 a week from 1 August 1991.
Representation
2. 	I held an oral hearing of this appeal. The claimant, who was not present, was represented by Mr. Neil Heward of the Colchester Mortgage Centre. The adjudication officer was represented by Mr. G. Polland of Central Adjudication Services, Leeds.
Nature of the appeal
3. 	The question in this appeal relates to the amount of mortgage interest allowable by way of housing costs to a former tenant with security of tenure who has purchased her home with the aid of a mortgage loan.
4. 	The general principle is this:
“If you did have security of tenure as a private tenant or a council tenant (i.e. you were protected by the law against eviction by the landlord), the amount for your housing costs will be restricted to the amount of the rent used to calculate your HB before you bought your home. If, subsequently, the costs of your mortgage or loan rises again [sic], you will be allowed the increase in your assessment of housing costs.”
(See the National Welfare Benefits handbook 22nd edition 1992/93 pp. 31‑32).
5. 	What happens if, after such increase, there is a reduction in expenditure on housing costs? That is the issue in the present case. It is of general importance to former tenants of council houses or other homes with security of tenure who have bought their homes with mortgage assistance in cases where, after a rise in mortgage interest rates, there has been a subsequent fall in such rates.
The relevant statutory provisions
6. 	The relevant statutory provisions are paragraphs 7(l), (2) and (3), and 10(1) and (2) of Schedule 3 to the Income Support (General) Regulations 1987. These provisions are set out in the first appendix.
The adjudication officer’s decisions
7. 	On 29 August 1991 an adjudication officer issued the following decision:
“The claimant is entitled to an applicable amount for housing costs amounting to £11.44 a week from 1 August 1991.”
8. 	The claimant appealed against this decision and in his written submission on the appeal the adjudication officer summarised the facts as follows:
“5.1.	Miss Cryer is aged 87 and lives alone in a property which she is buying with a mortgage. She has been in receipt of income support, paid together with her retirement pension, since 12 October 1989.
5.2.	On 30 October 1989 Miss Cryer completed the purchase of her home which she had previously rented from the Local Authority. To do so she had taken out a mortgage of £14,385. The gross interest rate as at 31 October 1989 was 13.5% and the mortgage interest was subject to tax relief (MIRAS) at 25%. The weekly mortgage interest was therefore £28.01 (£14,385 x 75% ÷ 52).
5.3. 	Miss Cryer’s applicable amount for housing costs was initially restricted to £14.65 a week, this being the amount of the eligible rent on her home immediately before she purchased it.
5.4.	When the mortgage interest subsequently increased the amount allowable for housing costs was increased by the amount of the weekly increase in Miss Cryer’s mortgage interest. By 1 March 1990 her applicable amount for housing costs had increased to £18.60.
5.5 	As the mortgage interest rate reduced, Miss Cryer’s applicable amount for housing costs was reduced in line with the reduction in interest payable. By 1 August 1991 this meant that the allowance for housing costs was £11.44 a week, less than the original restricted amount.
5.6 	The calculation of restricted housing costs, throughout the period since Miss Cryer purchased her home, is attached at pages 1‑2.
5.7.	The claimant has appealed on the grounds that firstly the amount allowable for housing costs was insufficient to pay the mortgage interest even after the interest rate reduced and secondly that the rent on her home would by now have increased to £21.72 a week and this fact has not been considered. No other aspect of her income support entitlement is in dispute.”
Note:	1. The calculation referred to in 5.6 is set out in the second appendix. (There is no page 2 in the case papers).
2. 	None of the statements in the above summary is in dispute.
9.	In the adjudication officer’s submission the amount of the expenditure on housing costs could not be restricted when the eligible rent increased. His reasons for his decision were that:
“The only provision whereby the amount can be increased is to the extent of any increase in actual expenditure in housing costs. There is also no provision to restrict subsequent reductions to the original restricted amount.”
The appeal tribunal’s decision
10.	The appeal tribunal’s decision was:
“The claimant is entitled to an applicable amount of housing costs of £11.44 per week from 1 August 1991.”
Their recorded findings of fact were:
“1. 	Miss Cryer purchased her local authority house on 30 October 1989, having previously been a tenant. She has received income support since 12 October 1989.
2. 	She obtained a mortgage of £14,385 and the weekly mortgage interest was £28.01 this was reduced to £14.85, which is the rent, immediately prior to purchase.
3. 	Since the purchase the mortgage interest has reduced and as at          29 August 1991 was £24.80 which reduced the applicable amount for housing costs to £11.44.
4. 	During the same period the rent would have increased to £21.22 per week.”
Their recorded reasons for decision were:
“1.	The claimant acquired an interest in her dwelling which she had occupied as her home;
2.	The amount applicable in the housing costs was restricted to the eligible rent immediately before the acquisition (which was £14.85) 
3. 	The applicable amount can only be increased to take account of any increase in housing costs which has not occurred here.
Housing costs for this purpose is the applicable amount allowed in the calculation of income support.”
The arguments on appeal
11.	The claimant appealed against this decision and the adjudication officer in a written submission supported the appeal. He submitted that paragraph 10(2)(a) of Schedule 3 did not assist the claimant because she was in receipt of income support at the time of her purchase and paragraph 10(2)(b) did not because the claimant’s circumstances did not appear to have changed in any material way since the original restriction. But, in his submission, the tribunal erred in law in deciding that the amount allowed by the adjudication officer was correct. The legislation did not deal specifically with reductions in mortgage interest and it was not intended to allow the actions of the adjudication officer between 1 November 1990 and 1 August 1991 [These are set out in the second appendix]. If this were the intention it would be possible, given enough reductions in interest rates, to end up with housing costs being extinguished. This could not have been the intention of paragraph 10.
12. 	Before me, Mr. Polland submitted that the claimant should have received, as her applicable amount for mortgage interest, £14.65 (the amount of eligible rent prior to completion) increasing as interest rates went up to £16.73 and then to £18.60 (as shown in the second appendix) but that thereafter, as interest rates went down, the allowable mortgage interest should have stayed at £18.60 throughout the periods referred to in the second appendix. Further, that amount should continue to be allowed as mortgage interest as the rate of interest continued to fall until the eligible (mortgage) interest payable by the claimant, as calculated under 7(3)(a) of Schedule 3, was less than the restricted amount under paragraph 10(1), when the eligible (mortgage) interest would be payable.
13.	Mr. Polland submitted that the advice in the Adjudication Officer’s Guide at Volume 3 paragraph 27634 did not state the law correctly. This advice states:
“27634 Reductions in the claimant’s actual outgoings should be taken into account in the normal way. This should be done even if the effect of the change is to reduce the new housing costs below the amount of the former rent regarded by the LA as being eligible for HB.”
Note: LA stands for local authority and HB for housing benefit.
In Mr. Polland’s submission regulation 10(1) contained no provision for a reduction of the restricted amount as interest rates fell and by awarding £11.44 a week housing costs from 1 August 1991, when they should have been awarded £18.60 a week the tribunal were in error as to the law.
Was the tribunal’s decision erroneous in law?
14. 	In my judgment, the tribunal’s decision was erroneous in law because:
(1) The tribunal’s reasons for decision do not support their conclusion. On their reasoning, the applicable amount of housing costs should be £14.65 (the eligible rent) since they found there had been no increase. But they found the applicable amount to be £11.44. No reason at all was given for reducing the applicable amount below the eligible rent.
(2) 	There is nothing in regulation 10(1) to warrant any reduction in the restricted amount when interest rates fall. The restricted amount is initially the eligible rent immediately before the acquisition. Provision is made for subsequent increases and, in the present case, two such increases occurred. But no provision is made for subsequent reductions.
15. 	For these reasons I set aside the decision of the appeal tribunal.
Construction of paragraph 10(1) of Schedule 3
16. 	There is no difficulty in ascertaining the initial eligible rent of a person on income support immediately before acquiring ownership of the rented property. There is, also, no difficulty involved in limiting the applicable amount, if the eligible interest is greater than this sum, to such rent. The wording “and shall initially be restricted to the amount of the eligible rent immediately before the acquisition” expressly provides for such a limitation. In the present case, the eligible rent was £14.65 and the eligible interest (i.e. “the amount which would, but for this paragraph, be applicable under paragraph 7”) calculated as shown in the second appendix to this decision, was £28.01. So the claimant received £ 14.65.
17.	In the case of local authority property, it is possible (as in the present case) to ascertain what the subsequent rent of that property would have been at a later date. But there is nothing in paragraph 10(1) to justify adjusting the “restricted amount” of allowable interest to correspond with any increase, or reduction, in such rent.
18. 	A subsequent increase in mortgage interest above the rate obtaining when the property was acquired, is expressly authorised by paragraph 10(1) “but only to the extent that it is necessary to take account of any increase, after the date of the acquisition, in expenditure on any housing costs”. So the increase in housing costs of £2.08 a week when interest rates went up from 13.5% to 14.5% led to an increase in the restricted amount from £14.65 to £14.65 + £2.08 = £16.73 a week and the increase from 14.5% to 15.4% led to an increase from £16.73 to £16.73 + £1.87 = £18.60 a week. See the second appendix. These increases are expressly authorised.
19. 	Successive reductions in interest rates down to 11.95% would, if authorised by paragraph 10(1) reduce the applicable amount to £11.44 a week, when the actual eligible interest in the week would be £24.80: see the calculations in the second appendix. So, if the interest rate were reduced to, say, 4% the restricted amount would be reduced from £11.44 to a minus quantity. Such an unfair result is not justified by the wording in paragraph 10(1) (or elsewhere).
20. 	An alternative construction to the effect that reduction in the restricted amount should be made with successive interest rate reductions, until the amount of the initial eligible rent (£14.65) is reached, but should not fall below that amount is, in my view, equally unwarranted by the language. That rent is the “initially … restricted” amount. The purpose is clearly that a claimant who buys his council house or other property in which he has security of tenure, should not receive, at the time of purchase, a larger allowance for mortgage interest than that which he received for rent. Paragraph 10(1) stops him becoming worse off if interest rates rise. But there is no provision to prevent him continuing to enjoy the partial relief from restriction when interest rates fall. If that had been intended, with the result that mortgage interest, as rates fell, could cease to be allowable at all, express provision should have been made. It was not.
21. 	Accordingly, from 1 August 1991 the claimant is entitled to £18.60 housing benefit.
Review
22. 	The decision of the adjudication officer under appeal was made because of the change in mortgage interest rates. This was clearly a change of circumstances and, as Mr. Commissioner Skinner stated in the decision in Carlisle, reference CIS/303/1992 (starred as 116/1992) at paragraph 6, where the only reason for an adjudication officer making his decision is the change of interest rates, there is clearly a change of circumstances, and “it would be pedantic to hold it was not a review decision”. I agree. The decision of the adjudication officer issued on                 29 August 1991 was a decision on review. So, also, was the decision of the appeal tribunal.
23. 	Where the mortgage involves no repayment of capital and the amount outstanding remains the same, each time the rate of interest changes a review decision as explained in the decision in Carlisle, must be given.
24. Previous decisions of the adjudication officer in this case, giving effect to a reduction in interest rates, are not the subject of this appeal. They will require, as a result of my decision, to be reviewed on the ground that they were made in error as to the law, and the arrears of housing costs due should be calculated and paid.
25. 	My own decision relates to the period from 1 August 1991 and is open-ended. When interest rates change, there should be a review at that date. If, however, interest rates have continued to fall, no revision of housing costs as a result of such fall will be required until the eligible interest falls below £18.60. Below that figure, the revision should be to the amount of the eligible interest.
26.	The advice quoted above from the Adjudication Officer’s Guide as to reduction of housing benefit when interest rates fall is incorrect and should be amended.
27. 	My decision is set out in paragraph 1. 

Date: 31 March 1993	(signed) Mr. V. G. H. Hallett	Commissioner

APPENDIX 1
(see para. 6 above)
Interest on loans to acquire an interest in the dwelling occupied as the home
7.– (1) Subject to [the following sub‑paragraphs of this paragraph], the following amounts shall be met under this paragraph–
(a)	if the claimant or, if he is a member of a couple, or if a member of a polygamous marriage, he or any partner of his is aged 60 or over, 100 per cent. of the eligible interest in his case;
(b) 	[except where sub‑para. (1)(a) applies,] if the claimant or, if he is a member of a couple, or if a member of a polygamous marriage, he and any partner of his aged under 60–
(i)	where the claimant has been in receipt of income support in respect of a continuous period of not less than 16 weeks, 100 per cent. of the eligible interest in his case;
(ii)	in any other case, 50 per cent. of the eligible interest in that case.
(2) 	Where in a case to which sub‑paragraph (1)(b)(ii) applies–
(a)	either–
(i) 	the claim for income support is refused; or
(ii)	an award of income support is terminated on appeal or review, solely because the claimant’s income exceeds his applicable amount by virtue of the fact that only 50 per cent. of the eligible interest in this case is to be met under subparagraph (1)(b)(ii); and
(b)	the claimant or any partner of his makes a further claim no later than 20 weeks after–
(i)	where the original claim for income support was refused, the date of that claim; or
(ii)	where an award of income support was terminated on appeal or review, the date of the claim in respect of which that award was made,
the amount to be met under this paragraph commencing on a date not before the expiry of 16 weeks from the date specified in (i) or (ii) above, as the case may be, shall be 100 per cent. of the eligible interest in that case and until that date shall be the amount specified in sub‑paragraph (1)(b)(ii).
(3)	Subject to sub‑paragraphs [(3A) to (6)], in this paragraph “eligible interest” means the amount of interest on a loan, whether or not secured by way of a mortgage or, in Scotland, under a heritable security, taken out to defray money applied for the purpose of–
(a)	acquiring an interest in the dwelling occupied as the home; or
(b) 	paying off another loan but only to the extent that interest on that other loan would have been eligible interest had the loan not been paid off.
Restriction on meeting housing costs under this Schedule
10.– (1) Subject to sub‑paragraph (2), where–
(a)	the dwelling occupied as the home is occupied with security of tenure, that is to say–
(i)	under a protected or statutory tenancy for the purposes of the Rent Act 1977 or the Rent (Scotland) Act 1984, excluding any case in which the tenant has been given a notice to which any Case in Part lI of Schedule 15 to the Act of 1977 or, as the case may be, Part 11 of Schedule 3 to the Act of 1984 (cases in which Court must order possession where dwellinghouse subject to regulated tenancy) applies;
(ii)	under a secure tenancy for the purposes of Chapter II of Part I of the Housing Act 1980 or Part 11 of the Tenants’ Rights Etc (Scotland) Act 1980 (security of tenure of public sector tenants);
(iii)	where the tenant is a protected occupier or statutory tenant for the purposes of the Rent (Agriculture) Act 1976;
(iv)	under a crofting tenancy for the purposes of the Crofters (Scotland) Acts 1955 and 1961;
(v)	under an assured tenancy for the purposes of section 1 of the Housing Act 1988 or section 12 of the Housing (Scotland) Act 1988; or
(vi)	under an assured agricultural occupancy for the purposes of section 24 of the Housing Act 1988;
(b)	the claimant or, if he is a member of a family, any member of the family acquires some other interest in the dwelling occupied as the home; and
(c) 	in consequence of the acquisition the aggregate of any amounts which would, for this paragraph, be applicable under paragraphs 7, 8 and 9 exceed the amount of the eligible rent for the purposes of regulation 10 of the Housing Benefit (General) Regulations 1987 (rent) immediately before the acquisition,
the aggregate amount so applicable shall initially be restricted to the amount of the eligible rent immediately before the acquisition and shall be increased subsequently only to the extent that this is necessary to take account of any increase, after the date of acquisition, in expenditure on any housing costs.
(2) Sub‑paragraph (1)–
(a)	shall not apply where the claimant or the member of the family became liable to complete the acquisition at a time when income support was not payable in respect of him;
(b) 	shall cease to apply if its application becomes inappropriate by reason of any major change in the circumstances of the family affecting their ability to meet expenditure on housing costs;
(c)	shall cease to apply where income support ceases to be payable in respect of the claimant or his family except that it shall reapply wherever income support again becomes payable within a period of eight weeks or less.

APPENDIX 2
(See para. 7 Note 1 above)

Income Support (General) Regulations‑Schedule 3 
Restricted housing costs calculation ‑ paragraph 10.
(Mortgage interest calculations are done in accordance with para. 7 of Schedule 3).

30 October 1989 Mortgage calculation
£14,385 x 13.5% x 75%  52 = £28.01 housing costs restricted to £14.65 (amount of eligible rent prior to completion).

1 November 1989 mortgage calculation 
£14,385 x 14.5% x 75% = 52 = £30.09 amount of increase = 2.08 pw new applicable amount (14.65 + 2.08) = £16.73

1 March 1990 mortgage calculation 
£14,385 x 15.4% x 75% = 52 = £31.96 amount of increase = 1.87 pw new applicable amount (16.73 + 1.87) = £ 18.60

1 November 1990 mortgage calculation 
£14,385 x 14.5% x 75% = 52 = £30.09 amount of decrease = 1.87 pw new applicable amount (18.60‑1.87) = £16.73

1 April 1991 mortgage calculation 
£14,385 x 13.75% x 75% T 52 = £28.53 amount of decrease = 1.56 new applicable amount (16.73‑1.56) = £15.17

1 May 1991 mortgage calculation 
£14,385 x 12.95% x 75% = 52 = £26.87 amount of decrease 1.66 new applicable amount (15.17‑1.66) = £13.51

1 July 1991 mortgage calculation 
£14,385 x 12.45% x 75% = 52 = £25.84 amount of decrease = 1.03 new applicable amount (13.51‑1.03) = £12.48

1 August 1991 mortgage calculation 
£14,385 x 11.95% x 75% = 52 = £24.80 amount of decrease = 1.04 new applicable amount (12.48‑1.04) = £ 11.44