Some 42,000 people have had their mortgage benefit payments stopped after the government introduced controversial changes to the way a mortgage help scheme works.
New figures from the Department for Work and Pensions (DWP) show that less than a quarter of recipients of the Support for Mortgage Interest (SMI) scheme have opted to continue receiving the benefit.
Of the 103,000 cases, only 18,000 have opted to take up the new arrangement that came into force on 6 April. Those who will no longer receive help with their mortgage payments may now be at greater risk of going into arrears. Some 42,000 claimants indicated that they wished to decline the loan, while 12,000 have not decided what to do and are at risk of losing the payments six weeks after successful phone contact was made.
In March, Moneywise reported that members of Parliament had joined calls to delay the implementation of the new scheme. The government has been criticised for the poor quality of information it provided to claimants.
Initially, letters were sent to all claimants in July 2017 and were supposed to be followed up with phone calls to inform claimants, but DWP figures show that only 72,000 of them have been called successfully.
The DWP phoned 27,000 claimants but was unable to make contact with them, while it has made no phone contact at all with 4,000 other claimants.
DWP has told Moneywise that these claimants will continue to receive the benefit until such time as contact has successfully been made by phone.
Once this contact is made, the claimant will have six weeks to decide whether or not to accept the new loan scheme. Those who have declined the payments but later change their minds can have all missed payments backdated.
Such is the impact of the changes to the scheme, shadow secretary of state for work and pensions Margaret Greenwood MP intervened to ask the government a written question on 18 April. The response revealed that DWP had published incorrect figures regarding the number of SMI cases and was forced to apologise and revise its figures up from 90,000 to 103,000.
Ms Greenwood explains: “The government has revealed that almost 60% of SMI claimants contacted by Serco by phone have declined the loan that is to replace the payments they used to receive. Overall, that is over 40% of the total number of SMI claimants.”
“SMI is means-tested and a large proportion of people claiming it are elderly or disabled. There is a real danger that people will try to make do by cutting back on essentials like food or heating instead. The government has also admitted that it failed to count over one in 10 claimants in its statistics, underestimating the total number by 13,000, and has had to apologise for its mistake.
“The introduction of a loan is proving a chaotic failure. The government must stop, think again and act to ensure vulnerable people are not pushed into poverty as a result of this change.”
Mutual insurer Royal London has also called on the government to delay implementing these changes.
Helen Morrissey, personal finance specialist at Royal London, says: “We have repeatedly called on government to reconsider its approach and these figures demonstrate the point. The changes to SMI came in from 6 April and yet these figures show the government has yet to speak to some 30,000 claimants about the changes and only 18,000 have said they will take up the loan option.
“We have no idea what strategies people have in place to meet these payments if they haven’t taken the loan option and we could see people start to default on their mortgage payments. The government must put a brake on these changes to ensure these people are engaged with and helped to make an informed decision. Otherwise these people face disastrous consequences.”
What is SMI?
SMI was originally paid as a free benefit that covered the cost of interest on mortgages for those claiming other benefits such as pensions credit, income support and universal credit. The government decided to change how it worked in 2014 so that any payments made after April 2018 would need to be paid back when the property was sold or transferred into new ownership.
The new system has shifted from a free benefit to a loan. This loan would come with accruing interest of its own. The rate is tied to gilt rate forecasts, which critics say is unsuitable.
A DWP spokesperson has explained to Moneywise the reasoning behind the changes: “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.
“People who sign up to the loan will continue to get help with their mortgage interest and it is only repayable if there is available equity when the property is sold.
“If people decide to decline the loan now but change their mind in future, the loan can be backdated so, in effect, there would be no break in payments.
“We have already contacted [by letter] everyone currently in receipt of SMI to explain the change, but we are making sure people have time to review the documents, obtain advice and consider their options.”