Self-employed homeowners facing “perfect storm” this winter as plummeting support leaves some surviving on 30 per cent of pre-crisis income

New analysis by Labour shows that some self-employed homeowners face the prospect of a winter on just a third of their pre-crisis income because of the Government’s cuts to self-employment support and withdrawal of vital protections for mortgage-holders.

Labour’s Shadow Chancellor Anneliese Dodds has described withdrawal of mortgage holidays and the reduction in the level of self-employment grants as creating a “winter perfect storm” and called on the Government to change course.

From November, self-employed people will be able to apply for a third grant under the Self-Employment Income Support Scheme (SEISS) to cover the next three months – but only for 40 per cent of their pre-crisis trading profits: down from 80 per cent for the first grant and 70 per cent for the second. The Resolution Foundation estimates that 17 per cent of self-employed workers - 760,000 people - had no earnings in September.

According to Labour’s analysis, that means a self-employed single homeowner earning profits equivalent to the National Living Wage had an income of £1,254 before the crisis hit. After mortgage costs and council tax were taken into account, they had £854 left for other spending.

That same homeowner will now only get £654 before mortgage costs. Factoring in mortgage payments on top means they could be left with just £254 – 30 per cent - of their pre-crisis income to get through the month.

A self-employed homeowner with a non-working partner and no children will now have to make ends meet on half of their pre-crisis income after mortgage costs.

On 31 October, applications for the mortgage holiday introduced by the Government at the outset of the Covid crisis will end. As more parts of the country head back under localised restrictions, anyone who gets into financial difficulty will no longer be able to apply for a mortgage holiday.

Self-employed homeowners grappling with huge drops of income and mortgage payments face another cliff edge on 31 October, which also marks the end of the ban on repossessions that has protected many mortgage holders through this crisis. Labour wants the Government to extend the application window for mortgage payment holidays and the ban on repossessions for another three months.

The Shadow Chancellor is also calling for the Government to take urgent action to support people who are struggling with their mortgage repayments.

Under current rules, people who need help to cover the cost of interest payments have to wait nine months before they can access the Support for Mortgage Interest Scheme (SMI). Labour is calling on the government to immediately reduce the waiting period for the SMI scheme from 39 weeks to 13 weeks, as the Labour government did at the height of the global financial crisis.

The Chancellor has still done almost nothing for those self-employed people who have been excluded from support from the start.

Anneliese Dodds MP, Labour’s Shadow Chancellor, said:

“Self-employed homeowners are facing a perfect storm because the Government has decided to abandon them just as we head into the winter.

“There’s still time for the Government to stop a bleak winter for Britain’s self-employed workers.

“It must remove the mortgage cliff edge, fix the gaps in its income support schemes and help people defer the cost of interest payments.”

Ends

Notes to Editors

• On 22 October 2020, the Chancellor announced that from November, eligible self-employed people will be able to apply for a third grant under the Self-Employment Income Support Scheme (SEISS) to cover the next three months. This will cover 40% of their pre-crisis trading profits, which is up from the original government proposal for just 20% but it still down on the first grant (80%) and the second grant (70%). There will be a fourth grant made available in the new year, but there is still no detail on the level at which this will be set. https://www.gov.uk/government/news/plan-for-jobs-chancellor-increases-financial-support-for-businesses-and-workers
• The Resolution Foundation estimate that 17% of those who were self-employed before the crisis had no earnings in September, Jobs, Jobs, Jobs, 27 October 2020, https://www.resolutionfoundation.org/app/uploads/2020/10/Jobs-jobs-jobs.pdf
• The Annual Population Survey estimates that there were 4.49m self-employed workers aged 16-64 across the UK in 2019. 17% of this group equates to 760,000 individuals.
• A self-employed person with trading profits equivalent to the National Living Wage would be earning £16,777 a year, or £1,398 a month. After tax and national insurance this results in a post-tax income of £1,254 a month.
• In Bolton, a median one bedroom property costs around £87,750. Assuming the self-employed person has two-thirds of the cost remaining on their mortgage (£58,500) and faces an interest rate of 3%, they would have monthly mortgage payments of £324. In addition they would have a Council Tax Bill of £76 if they are a sole occupier, £101 if living in a couple
• Using the Policy in Practice Benefit Calculator to provide an estimate of benefits they could receive when their earnings fall from £1,398 a month to 40% of that amount, £559 a month, and subtracting their mortgage and council tax costs, reveals the drop in their total income:

https://betteroffcalculator.co.uk/login

• The Support for Mortgage Interest (SMI) scheme offers government support to homeowners in financial difficulty, to enable them to repay the interest – calculated as a standard figure of 2.61% - on up to £200,000 worth of their mortgage. The scheme currently operates as a loan, repaid at an interest rate of 1.3%. Homeowners are eligible if they are in receipt of Income Support, income-based Jobseekers’ Allowance, income-related Employment and Support Allowance, Universal Credit or Pension Credit. The current waiting time to receive the support if after 39 weeks of receipt of any qualifying benefit, or 9 consecutive Universal Credit payments or immediately upon receiving Pension Credit. https://www.gov.uk/support-for-mortgage-interest
• In 2009, the then Labour Government reduced the SMI waiting period from 39 weeks to 13 weeks and increased the loan cap to £200,000 for new working age claims, to enable more people to claim support faster at the height of the global financial crisis. At that time, SMI was paid as a grant. https://commonslibrary.parliament.uk/research-briefings/sn06618/
• In the Summer Budget 2015, the Conservative Government announced plans to increase the SMI waiting period back to 39 weeks from April 2016 and to change SMI from a grant to an interest-bearing loan from April 2018. The government also opted to keep the SMI cap at £200,000. Provisions to implement these changes were included in the Welfare Reform and Work Act 2016. (https://www.gov.uk/government/publications/summer-budget-2015/summer-budget-2015; https://www.legislation.gov.uk/ukpga/2016/7/contents/enacted)
• The Labour Party is calling on the Government to reduce the SMI waiting period from 39 weeks back to 13 weeks with immediate effect. The party is also calling on government to ask the Social Security Advisory Committee (SSAC) to conduct an urgent review into the structure of SMI, including its status as an interest-bearing loan and the appropriateness of the £200,000 cap given house prices have risen by 52% between March 2009 and March 2020, to make sure that support is being best targeted to the people that need it, so that those who lose their jobs as a result of the coronavirus crisis do not also lose their homes. https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/april2020
• On 17 March 2020, the Government announced the availability of a three-month mortgage holiday as part of its package of support for individuals, businesses and the economy. https://www.gov.uk/government/speeches/chancellor-of-the-exchequer-rishi-sunak-on-covid19-response
• On 22 May 2020, the Government announced that it would extend the mortgage holiday option by a further three months until October 31^st. It also announced an extension of the ban on repossessions to the same date. https://www.gov.uk/government/news/help-with-mortgages-to-continue-for-homeowners-affected-by-coronavirus