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Support for Mortgage Interest under the microscope

Support for Mortgage Interest under the microscope

Category: Mortgages

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

A scheme which allows homeowners who have fallen into difficulties to pay the interest off their mortgage is to be reviewed.

Support for Mortgage Interest (SMI) is available to people on certain benefits such as Income Support, Income-based Jobseeker's Allowance and Pension Credits.

The support, which currently costs the Government around £400 million each year,
was introduced to help people who were, or are, struggling to make their mortgage payments.

The Department for Work and Pensions says that without the help available through SMI, a claimant would either have to sell their home or have it repossessed if they could not keep up with mortgage payments.

But there is concern that too many people may be using it as a long-term option, rather than those who, through an unfortunate change in circumstances, are having short-term problems with their mortgage payments.

The Government is looking for views on:

  • Whether it is right for future new claimants of SMI to receive support indefinitely without the taxpayer having an opportunity to recoup some of those costs to help others in need; and,
  • If after a fixed period of time, new claimants who want to continue receiving support should do so in exchange for a charge being levied on the property which would be paid back to the taxpayer upon its sale.

"The current system of SMI payments does not encourage people to get on top of their own finances. It is also not sustainable," said Lord Freud, Minister for Welfare Reform.

"We are committed to supporting homeowners to stay in their own homes when times are hard.

"But in the future this type of support must be fair and affordable so we are seeking views from experts and the wider public, including options for putting a charge on the homes of future claimants so when they sell up we can recoup some of the costs."

The Council of Mortgage Lenders said it welcomed the call for evidence and was looking forward to working with the DWP to improve SMI.

However, it has spoken out against plans to change the way SMI is paid.

Currently, SMI is paid directly to lenders, but proposals could see benefits paid to claimants which they are then expected to pass on to lenders.

The change could be introduced 'so that claimants take responsibility for making their mortgage payments to their lenders in the same way that many of them did when they were in work'.

The CML has said it is 'extremely concerned' about the prospect of benefits being paid to claimants.

"While the CML acknowledges the merits of encouraging personal responsibility, in practice any move away from Mortgage Interest Direct will inevitably mean that some of the funds designed to help meet mortgage costs will be diverted to other spending by some claimants," it said in a statement.

"It is difficult to see how this can be justified in terms of accountability to the taxpayer."

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