Could a new benefits policy affect your mortgage?

Changes to the government’s Support for Mortgage Interest benefit could affect homeowners like you

The Support for Mortgage Interest (SMI) benefit was replaced by a loan in April 2018. SMI is paid to homeowners who receive certain benefits, such as Pension Credit and Jobseeker’s Allowance, to cover the interest payments of mortgages and some home improvement loans.

SMI was paid as a free benefit, but any SMI payments you receive from April 2018 will have to be repaid to the government with interest when your property is sold, transferred into new ownership, or on your death (or your partner’s death if they continue to live in the property).

In 2017, the government started sending out letters to people receiving SMI to let them know of the change, so you should have had the opportunity to sign up to the loan.

These letters were to be followed up with telephone calls to allow those affected to ask questions about their options. However, in January 2018 the Department for Work and Pensions admitted that “not all SMI claimants have been contacted as yet” and that only 6,850 people had signed up to the loan option so far. By 5 March 2018, 10,179 people had agreed to the loan, with almost 6,000 claimants – around 5% of the live caseload – yet to be contacted.

Decision time

It’s surprising that so few people had made the decision to opt for the loan option at this time. There could be several reasons why this is the case. It could be that some people have found other ways to cover the cost of their mortgage interest payments. They could have done this by accessing other savings – a pension or ISA, for instance. They could have also asked family or friends for help.

However, there is also the concern that people have yet to make a decision because they’re confused. If you’re on benefits, such as Jobseeker’s Allowance, for instance, you will hopefully find a job fairly quickly and so won’t claim SMI for too long. However, if you’re on Pension Credit, you may be claiming SMI for many years and so the debt could run into thousands of pounds. Even though the debt doesn’t have to be paid until the property is sold, transferred to another person, etc., the thought of incurring this debt could cause you real concern.

What can you do?

So what should you do if you, or someone you know, is an SMI claimant and doesn’t know whether to take up the loan option?

• Contact your mortgage provider: the first thing you should do is contact your mortgage provider to see what they can offer you. You might be able to get a new deal where you pay less, for instance.
• Talk to someone: organisations such as the Money Advice Service or Citizens Advice will be able to give you help and support.
• Get advice: if possible speak to a financial adviser about your options. They will be able to look at your entire financial situation and suggest alternative ways of meeting the mortgage interest payment.

The important thing is not to suffer in silence and worry about what might happen. Speaking to your mortgage provider and organisations such as Citizens Advice will give you a clearer idea of your options and help you make a decision.