Forthcoming government changes to the Support for Mortgage Interest (SMI) benefit could be catastrophic for the mortgage market, it has been warned.
In April, the existing system of benefits to help mortgage holders in financial difficulties - whereby the government pays the money as a benefit - will be replaced by a system of loans.
SMI is paid to homeowners in receipt of certain income-related benefits such as Jobseekers Allowance and Pensions Credit. It covers the interest payments on mortgages and some home improvement loans.
It has been paid as a benefit, but after April any SMI payments will need to be repaid to the government with interest when the property is sold, transferred into new ownership or on the death of the recipient (or their partner).
The Department for Work and Pensions (DWP) started sending letters out to those affected last year advising that they could either choose to take up the loan option or stop receiving the support.
Where a claimant is undecided they will be sent a call summary with a reminder following six weeks later if the forms have not been returned. Benefit cessation and final reminder letters are due to be sent throughout March.
Around 124,000 households currently receive the benefit. But only about 10,000 claimants have signed up to receive the loans.
Figures contained within the Office for Budget Responsibility’s Economic and Fiscal Outlook said that while all current claimants had been contacted regarding the change only around 10,000 claimants have so far agreed to take up the loan.
According to the document this is "90 per cent short of the 100,000 expected by the end of 2018/2019".
Currently there are around 57,000 SMI claimants who are of Pension Credit qualifying age and around 67,000 who are of working age.
Where a claimant agrees or wishes to consider the loan further, the appropriate letter and documentation is issued for completion. Should they subsequently agree to a loan claimants are asked to return the relevant documentation within six weeks.
The DWP started to provide information about SMI loans via government outsourcing contractor Serco to low numbers of existing claimants in the first few weeks after it was announced in the 2015 Budget. There was then a break for one week to assess progress.
The roll out programme for 'informed discussions' - to talk about the loan replacement for SMI - is still ongoing and not all existing SMI claimants have been contacted as yet. Of those who have been contacted, the vast majority are Pension Age claimants.
Helen Morrissey, personal finance specialist at Royal London, said around 100,000 people will lose out as a result of these changes.
Figures she said were "buried on page 210" of a report published on the date of the Spring Statement (13 March) reveal "catastrophically low numbers" have opted into a scheme to stop their mortgage benefit help being cut off in April.
"With less than a month until the new system is implemented Royal London has renewed its call for government to delay changes to SMI," she said.
Royal London is calling for the changes to be delayed until there is greater awareness among those affected.
Those who do not take up the offer of the loan will lose their mortgage support from April.
Stephen Lloyd MP, Liberal Democrat Spokesman for the DWP said: “Every month nowadays we seem to be hearing yet more examples of this Conservative government being both mean and unintelligent. And this mortgage interest benefit change is a classic example.
"It will force some homeowners into even more debt and will almost certainly force some people to sell their homes and put themselves at the mercy (and cost) of their local council.
"Which, naturally, will cost the taxpayer even more in benefits than keeping them in their own house by paying their mortgage interest payments.
"The Tories reputation for economic competence is being entirely shredded by this incompetent and, frankly, dim government.”
Ray Boulger, senior technical manager at John Charcoal said he wouldn’t expect many clients to contact their broker as a result of this issue. He said a client won’t be able to change their mortgage because of these changes, and so a broker is not the right port of call.
He added that he wouldn’t expect higher interest rates to create an environment where the number of mortgage holders in arrears increases. Mr Boulger said anyone who has received a mortgage in recent years has had their affordability “stress tested” at a much higher interest rates than the UK is likely to experience.
A representative of the Department for Work and Pensions said: "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."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.
“We have been contacting people to explain the change and signpost them to independent help and support giving them plenty of time to make a decision. But we understand that there are vulnerable people including those with severe learning disabilities or dementia, many of whom have someone acting on their behalf, who need extra support and time. We are making sure they get that.”
David.Thorpe@ft.com
