Calls for controversial mortgage scheme to be halted

2 March 2018

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.”


In reply to by anonymous_stub (not verified)

I am one of those pensioners affected by this change. At the moment the govt pay £25 a week towards my mortgage interest payment. I would be onat least £550 per month if I were to be claiming housing benfefit in a privately rented property. No doubt this would go to someone who has bought a property as a buy to let. I am not taking up the offer of a poorly set up loan with compound interest. As my property is shared ownership it is against Housing Association rules for me to incur a debt against the property but the govt are going to bend their own rules to put a second charge on the property. I am i tending to go without heating and food in order to continue to keep my property. I am responsible for all the upkeep and they are not going to take my equity.

In reply to by anonymous_stub (not verified)

I am a lone parent of two children (one disabled) I am having to claim income support in order to claim carers allowance. My careers allowance is taxed and taken away from my income support allowance giving me just £44.00 a week income support to live on. The government have made it financially impossible for me to work as the minute I earn over £20 a week they will deduct it from my income support/ stop my income support. If I earn over a £100 a week then they will stop my carers allowance and only being able to work part-time due to my child’s needs, I will be worse off working!... it’s a disgrace! I contacted the DWP about this and I’m told to contact my local MP!.. brilliant! To top it off I’m now forced to take out this SML!!... or my disabled child loses there home!.. I’ve worked all my working life and paid my taxes until my partner left, I paid £12’500 in stamp duty (2007) to purchase my home and now I’m faced with taking out a loan with interest or lose my home... who will pay for my child’s care needs when I’m gone from this horrid plant??... any equity in my home was my comfort that my child would be cared for. I’m disgusted that the disabled get hit again... the government should be ashamed!...

In reply to by anonymous_stub (not verified)

I totally agree with this article. I have not signed up for this agreement as SERCO did not seem to really understand how it works when I spoke to them although were very quick to advise me to take it up!For a large part of my professional life I paid my taxes (often higher rate taxes), always feeling safe that my home was secure and I could put a roof over my children's heads ( 9 and 17). They are both in full time education and I am suspecting now that this scenario will effect my oldest daughters thought process concerning University as she will be worried about her sister and my self and where we live. I didn't ask to be a 58 year old, disabled, single Dad but that is what I've become and all my years of business and paying my contributions seem a little shallow now as I would not be effected it seems, if I were living in a Council House. It seems this Conservative government from 2010 have ushered in 'Thatcherite' ideology through the back door. I am sincerely worried about my future as my health conditions worsen and of course overall I worry about my children's future. This scrapping of mortgage assistance stinks and will leave disabled people like myself with even more stress that will heighten our disabilities!!

In reply to by anonymous_stub (not verified)

It's disgusting if I was renting my house they would pay that but because I have a mortgage they will longer pay my interest. A of people will loose there houses if they can't afford to pay there interest.

In reply to by anonymous_stub (not verified)

I was forced. to leave work to care for my partner after suffering two strokes and advised by the consultant my partner should not be left alone , this was again confirmed by community nurse. I have been forced to lose 40k wage for £250 carers allowance and have any increase on this taken off social security. Now I am having my home stolen from me with interest on top of interest. And my pension plan has now been wiped out

In reply to by anonymous_stub (not verified)

There has not been enough of a fair transition period for this to happen, and to make a very important decision about getting advice and understanding a very complicated form.I also have never received this form from Serco, even asking for it to be sent to me on two occasions now. Each time DWP keeps telling me its on its way to me, but never arrives.I like many others have along with my mental health issues, have a fulltime caring role for my adult son who has schitzephernia and been in hospital for the last year and a half where i have to visit him at five different hospitals around the North East, due not having enough facilities where i live which is another matter, so enough stress without this very unfair loan rule. It needs looking at again as we will all be renting soon with the goverment paying much more rent than SMI WE NEED MORE OF A TRANSITION PERIOD THAN TWO MONTHS. I dont know how they can get away with this I am sure if it was legally looked into we may have a good case but we need to all support each other with this as a whole group

In reply to by anonymous_stub (not verified)

I have on behalf of my disabled son been trying for 3 weeks to even get hold of the smiLoan info pack ,I have met my MP, I will meet another this week, I have written letters to the dwp,spoken to serco etc etc etc and I,am at my wits end ,ando now we have hardly any time left to make an informed decision. The DWP is the uncontactable most of the time, I have already spent hours on the phone with no success

In reply to by anonymous_stub (not verified)

Another example of the government outsourcing to companies who wouldn't be involved if they didn't see profit. Very similar to student loans where interest rate very high but where the large unrecoverable sums will be paid by the government, ie costing even more to the taxpayer in the long run. Is government effectively saying that it is incapable of running such schemes themselves.

In reply to by Laurel Ellis (not verified)

Hi Laurel,

If you haven't already done so, you may want to check if you're eligble for any help towards living costs. For example:

You should also contact your enegy supplier to see if you're entitled to any help with your bills.

Best wishes,

Moneywise Helen

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