As Government Scraps Mortgage Benefit, Pensioners ‘Risk Home Repossession’

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Nearly 140,000 low-income households are being notified that the help that they receive with their mortgages will be scrapped within months unless they apply for a new loan with the government.

Letters with application forms are being sent out to 70,000-plus people who receive benefits and 65,000 pensioners.

Failure to comply will result in the discontinuing of the help that they receive with their mortgage in April 2018 and the repossession of their homes if they get into arrears as a result.

However, Royal London, a mutual insurer, says that the letters are unclear regarding the interest rate for what is, in effect, a “second mortgage,” and the recipients are receiving limited help in composing an informed decision.

Support for Mortgage Interest (SMI) is distributed to homeowners in receipt of certain income-related benefits such as Pension Credit and Jobseeker’s Allowance (JSA).

It pays for the interest on mortgages and some loans on home improvement on your behalf directly to your lender.

Those who qualify to enjoy the SMI get help paying the interest on up to a maximum of £200,000 of a mortgage. On the other hand, for those receiving Pension Credit, this figure is £100,000.

Up until April next year, it has been paid as a free benefit. However, after this point, SMI payments will need to be repaid to the government including interest when the property is sold.

A personal finance specialist at Royal London, Helen Morrissey, said that axing this represented a “massive policy shift.”

She said that the responsibility was on the government to make sure that people received the advice that they needed on whether or not to avail of a “second mortgage” to pay for this.

“Instead, thousands of people are getting letters which miss crucial details such as the interest rate on the mortgage,” said Morrissey.

“The government is pointing people in the direction of the Money Advice Service and Citizens Advice but they can only provide guidance as opposed to tailored advice.

“Some people will find the process too daunting and will lose their mortgage help next April, with a risk of repossession.

“Others will sign up, but this will make it even harder for those with interest-only mortgages to clear their outstanding balance at the end of the mortgage.”

Royal London believes that the rate will be around 2.2 percent. However,  that could increase in line with interest rates.

Of particular concern is the possible impact on those SMI recipients on Pension Credit who have interest-only mortgages that are stretching into retirement.

Analysis by Royal London reveals that a Pension Credit recipient that is receiving the average weekly SMI payment of £20 could accumulate a debt of £5,552 if they claim SMI for five years, which is the average duration of the claim of pensioners. If they were to claim it for ten years, the loan amount would be at £11,744.

Once the mortgage term ends, they risk the possibility of being required to repay the SMI loan as well as the outstanding capital total on their mortgage.

A DWP spokesperson stated: “This reform means we will continue to provide a safety net to help homeowners avoid repossession.”