The government continues to face criticism over the replacement of a key mortgage benefit, with an MP joining the calls for its implementation to be delayed.
From April 2018, the Support for Mortgage Interest (SMI) benefit – which helps low-income pensioners and people who receive in-work benefit payments – will be replaced with a chargeable loan.
However, the government has been criticised over the quality of information provided to claimants, the suitability of the interest rate it will charge borrowers and the lack of time it has given recipients to make decisions.
Moneywise has seen initial documentation supplied to claimants which failed to explain what rate of interest they would be charged on their loan, or how the rate was calculated.
Claimants are advised to contact Serco – which is administering the loans on behalf of the Department for Work and Pensions (DWP) – for more information, but one reader has reported that Serco was unable to explain the terms of the loan clearly.
The interest rate will be tied to gilt rate forecasts, a rate which critics say is unsuitable, and some claimants will be given just a few weeks to decide if the loan is suitable for them.
Around 135,000 people claim SMI and David Drew, Labour MP for Stroud, has joined insurer Royal London in calling for the scheme’s implementation to be delayed.
“I am very concerned to see the end of the Support for Mortgage Interest benefit and its replacement with a repayable loan managed by private company Serco,” he told Moneywise.
“I am also concerned about the lack of information and engagement with those who will be affected, as well as the short time period they face to make such an important financial decision, concerning their home.”
Mr Drew says he has been contacted by many constituents about the changeover, including one 75-year-old who fears they may have to return to work.
“This will have a massive impact on many pensioners and vulnerable or disabled people who relied on this benefit to enable them to stay safely in their homes,” Mr Drew says.
“I would like to see the implementation of this policy delayed, to allow more research into the wider implications and to give people more time and better information to make such a significant decision.”
“The letter doesn’t give you any detail”
The interest rate charged to customers is determined based on the gilt rate forecast published by the Office for Budget Responsibility. However, Ray Boulger of mortgage brokers John Charcol says it is not appropriate to use a gilt rate forecast as the interest rate on the loan.
“If a commercial mortgage lender launched a product which used a forecast for its interest rate, no mortgage broker would recommend it and the Financial Conduct Authority would probably ban it,” he says.
“The Financial Conduct Authority rules require lenders to be clear, fair and not misleading and you would be hard pushed to demonstrate this is clear. The source is not something most people would be familiar with.
“The government should be setting a good example. People who need this support are unlikely to know what a gilt is, never mind having to use a forecast rate.”
The current forecast for the gilt rate in 2018/2019 is 1.7%.
Moneywise reader Helen Michael, a retired civil servant from Gloucestershire, contacted Serco on behalf of her son, who she is a carer for. She said the firm was unable to explain to her how the interest rate she would be charged is calculated.
“The letter [from the Department for Work and Pensions] doesn’t give you any detail and when you call Serco it is clear that its operatives work from a script and are unable or not allowed to think outside the box.
“I asked for clear information about the terms and conditions of the loan, even the manager was unable to provide these. If I was to take a loan from any financial institution I would expect them to have this information.”
Garry Robinson, customer services director of Serco, says: “Serco staff are currently contacting claimants who are in receipt of SMI benefit and advising that due to a change in legislation this will stop from 5 April this year.
“We do not hold any financial data on the claimant or their loan and we cannot provide any financial advice.
“When our team do this they follow a DWP script and they have had comprehensive training in handling this sensitive subject.”
The Department for Work and Pensions would not reveal how many people had successfully applied for a loan but did admit that 2% of the 135,000 people who receive the benefit had yet to be contacted at all.
However, as Moneywise reported last month, data obtained by Royal London showed just 6,850 households had signed up to the new loan scheme by 22 January 2018.
A Department for Work and Pensions spokesperson told Moneywise: “Support for Mortgage Interest is being reformed so a safety net is still in place to protect homeowners from repossession when they need it and to make it fair to the taxpayer who funds it.
“Over time, someone’s house is likely to increase in value, so it’s reasonable that anyone who has received financial help towards their mortgage should be asked to pay that back if there is available equity when the property is sold.”
“There is no excuse”
Mr Boulger is also critical of the government for sending letters out with little time to make a financial decision. He says this is another example of poor practice.
“There is no excuse for not sending all of the letters out by now. The government should have ensured everyone was given at least three months’ notice.
“Some people may want to sell the property, but they are going to struggle to do so in that time. Even if the interest charges will be minimal, it is the principle of giving people enough time to decide.
“The government should be setting an example and doing things in a consumer friendly way. This is bad practice.”
Mrs Michael adds: “The government suggests getting financial advice but the people who have this benefit are unlikely to have the money or the wherewithal to get advice.
“If people feel they need to sell their home and move into the private rented sector the government will end up paying more money out as housing benefit.
“It is a lose-lose situation for both the people and the government.”
If you haven't already done so, you may want to check if you're eligble for any help towards living costs. For example:
- Benefits you're entitled to over 50: https://www.moneywise.co.uk/benefits/work-family/benefits-youre-entitled...
- Benefits you're entitled to over 60: https://www.moneywise.co.uk/work-family/benefits/benefits-youre-entitled...
- Benefits you're entitled to at state pension age: https://www.moneywise.co.uk/benefits/work-family/benefits-youre-entitled...
- Benefits you're entitled to over 65: https://www.moneywise.co.uk/work-family/benefits/benefits-youre-entitled...
You should also contact your enegy supplier to see if you're entitled to any help with your bills.