'Considerable uncertainty' surrounds end of mortgage benefit scheme

Published by Adam Williams on 16 March 2018.
Last updated on 16 March 2018

‘Considerable uncertainty’ surrounds end of mortgage benefit scheme

Thousands of homeowners who receive the Support for Mortgage Interest (SMI) benefit could be facing mortgage arrears, with a new independent report warning there is “considerable uncertainty” about the replacement of the scheme.

From 6 April 2018, the free SMI benefit will be replaced with an interest-charging loan. Around 135,000 people currently claim the benefit, which is mostly made up of low-income pensioners and people who receive in-work benefit payments.

However, the Office for Budget Responsibility (OBR) has reported that just 10,000 people have agreed to take out a loan when the SMI benefit ends – which is much lower than the government’s own 100,000 prediction.

In its report, the OBR says there is “considerable uncertainty regarding the extent to which those entitled to the loans choose to take them up”.  

It also found that more than half of people who have been contacted by the government have rejected the option to take out a chargeable loan outright, while less than a fifth of people who have responded to the government say they would consider taking out the loan at all.

Insurer Royal London, which continues to call for the scheme’s implementation to be delayed, describes the take-up as “catastrophically low”. Helen Morrissey, personal finance specialist at the provider, says that many people will end up in financial difficulty if they attempt to take on the extra costs themselves.

Moneywise has continued to be contacted by readers who are critical about the way the new scheme has been implemented by the government and Serco, which is administering the change on its behalf.

‘I’m worried about going into mortgage arrears’

Louise Barnes of Harrogate, Yorkshire is a full-time carer for her son and currently receives SMI. The 59-year-old says the government has not given people enough time to make a decision.

“It is ridiculous they [the government] are charging for this and most people are not taking the loan out,” Ms Barnes says.

“With three weeks to go, I haven’t even seen the agreement they want me to sign. There should have been more of a transition period.

“I am going to have to pay it somehow, but I am worried about going into mortgage arrears.”

Ms Morrissey adds: “While it is reasonable to suggest that some of these claimants may have made alternative arrangements to meet their mortgage interest payments there is a strong possibility that many of these people won’t and will face a nasty shock come April.

“SMI claimants are among some of the most vulnerable people in society and government must do more to help them understand the changes and what it might mean for them.

“If not we could see people struggle to meet their mortgage payments. We would urge government to delay the implementation of these changes to ensure people have enough time and support to make an informed decision.”

As Moneywise reported earlier this month, the scheme has also been criticised for using an unconventional interest rate and for the poor-quality documentation provided to claimants.

Margaret Greenwood, the shadow secretary of state for work and pensions, says: “It is absolutely unacceptable that with less than a month until changes to Support for Mortgage Interest are implemented tens of thousands of people are likely to be left without any form of support at all.

“Almost half of them are pensioners and there is a danger that senior citizens will try to cut back on heating or other essentials rather than take on a loan."

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If claimants have an interest

If claimants have an interest only mortgage, the net result of taking up this loan would be that they were paying interest on interest which results in a huge interest rate when added together. As they are claiming benefits because they're unable to manage the commitments they already have, how can forcing them to accept more credit be acceptable. And many WOULD be forced to take it, the alternative being default and either possible homelessness or having to rent instead in which case they would be claiming housing benefit at a much higher cost to the government than subsidising mortgage interest. Whatever bright spark thought of this scheme needs to go back to the drawing board pronto.

I used to have Support for

I used to have Support for Mortgage Interest from 2012 until 2017 when I paid off my mortgage . I am a carer for my 10 year old son. I feel sorry for people that are affected with this benefit change. A loan is just like a mortgage. My interest when I began it was £154.40 a month. I overpaid my mortgage to get rid of it. Many people wouldn't be able to afford this.

In 1990 400,000 families lost

In 1990 400,000 families lost their home.They ended up in crappy B&B type accommodation with no cooking facilities maybe at a cost to taxpayers four times higher than their mortgage payments.Its cheaper and as better stratigy to keep them in their own home.