More than 100,000 of Britain’s most vulnerable homeowners are being rushed into taking on more debt by the Government, an insurer has warned.
In 10 weeks, 124,000 UK homeowners who currently receive Support for Mortgage Interest to help them keep up with their home loan repayments will have to switch from getting the benefit for free to taking a loan from the Government.
While the loan isn’t repayable until the property is sold, it means that these homeowners – most of whom are financially vulnerable and many retired – will be racking up further debt.
Almost 120,000 homeowners could face a shortfall in their mortgage payments after April
Royal London submitted a freedom of information request to the Department for Work and Pensions and was told that out of the 124,000 homeowners currently receiving the benefit, just 6,800 people have chosen to take up the loan option.
This leaves almost 120,000 homeowners facing a shortfall in their mortgage payments, meaning they could fall behind and even lose their homes.
Helen Morrissey, personal finance specialist at Royal London, said: ‘We were concerned that people are not being given enough support to help them make an informed decision.
‘I put in an FOI which has produced some startling results. The DWP also says it hasn’t contacted all recipients yet.
‘Given that this change comes in in 10 weeks’ time we are concerned these people are being rushed into making a decision and we want Government to delay the change until all recipients are given appropriate information.’
In October last year, the Department for Work and Pensions wrote to more than 100,000 borrowers who claim SMI to help them pay their mortgage interest, explaining that as of 5 April this year, the benefit will become a loan with interest payable.
Estimates suggest that around 57,000 of those most affected are older, vulnerable borrowers who took out interest-only mortgages before the financial crisis hit in 2008 and now claim Pension Credit.
Working-age borrowers are also affected as SMI is paid to homeowners in receipt of certain income-related benefits, such as Jobseeker’s Allowance.
Morrissey said the Government plans to replace the benefits paid to help people pay their mortgage interest with repayable loans could cause ‘real hardship’.
‘We’re now calling on the Government to delay the controversial changes until households have been given proper information about what is planned.’
What is SMI?
Support for Mortgage Interest (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.
Currently there are approximately 124,000 SMI claimants. Around 57,000 are of Pension Credit qualifying age, while 67,000 are working age.
It has been paid as a free 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 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.
However, the DWP says that not all existing SMI claimants have been contacted as yet.
In its most recent FOI reply to Royal London, the DWP said that as of 22 January only 6,850 claimants have agreed to take up the loan with a further 18,177 saying they might take up the loan option.
It is truly shocking that many thousands of low income families are yet to receive the information they need
The FOI reply says that the ‘vast majority’ of communication so far has been to pensioners, which Royal London suggests means very few of the 67,000 working age families have been contacted to find out how they want to proceed.
Where a claimant is undecided they will be sent a call summary with a reminder following six weeks later if the forms had not been returned.
Final reminder letters confirming the benefit will stop being paid are due to be sent in February and March.
What is happening to SMI?
Anyone currently in receipt of Support for Mortgage Interest will be offered a support for mortgage interest loan.
The SMI loan will come into effect on 5 April 2018 and is only repayable after the property has been sold.
It will be repaid from proceeds after the outstanding mortgage is paid off. If there are insufficient funds to repay the SMI loan, government will write it off.
Additionally, there will no longer be a two-year limit on payment of SMI to claimants of Jobseeker’s Allowance.
Morrissey added: ‘It is truly shocking that many thousands of low-income families are yet to receive the information they need on the fact that their mortgage interest help could be switched off in just 10 weeks’ time.
‘If thousands of people fail to complete the process in time they could face real hardship and even potential repossession if they can no longer afford to meet their mortgage interest bills.
‘The DWP should pause the implementation of this policy until it is confident that everyone has had full information about the changes and the time and support to make an informed decision.’
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