Homeowners who receive mortgage support payments from the government could be left in financial trouble after the free benefit scheme is withdrawn next year.
The Support for Mortgage Interest (SMI) scheme provides assistance to low-income pensioners and those who receive in-work benefit payments such as jobseekers allowance.
It helps these homeowners meet the cost of their monthly mortgage payment as a free benefit. However, from April 2018 the system will be changed so that any support will be in the form of a loan from government. This loan will need to be paid back when the property is sold in the future.
The Department for Work and Pensions says around 135,000 letters are being sent out to claimants with around 65,000 of these going to pensioners.
Those who have interest-only mortgages stretching into retirement are expected to be hardest hit by the new rules. Moneywise has reported throughout this year on the difficulties older borrowers are facing at the end of their interest-only term as many will not have enough to pay down the original capital.
In future these homeowners could have an SMI loan to repay as well.
Those affected have started to receive letters from the government advising them of the change, but the move has come in for criticism from those who say the new rules are not clear enough.
Insurer Royal London says the government has not published any clear information about the rate of interest SMI scheme users will be charged from April.
The government has only stated that it will issue further guidance by February 2018.
Helen Morrissey, personal finance specialist at Royal London, says: “Up until this point SMI has been paid as a free benefit but any payments made from April 2018 will now need to be repaid with interest – this is a massive policy shift.
“The government needs to make sure that people have the help and advice they need to decide whether or not to take out a second mortgage to pay for this. But instead, thousands of people are getting letters which miss crucial details such as the interest rate on the mortgage.”