Support for Mortgage Interest Switching to Loans from April 2018
From the 5th April 2018, those claiming SMI (Support for Mortgage Interest), will no longer be able to claim it as a free benefit.
There are approximately 124,000 UK homeowners currently receiving SMI to help pay the mortgage interest on their homes, if they are also in receipt of certain income-related benefits such as Jobseekers Allowance and Pensions Credit.
Of the 124,000 SMI claimants. Around 57,000 are of Pension Credit qualifying age, while 67,000 are working age. The most vulnerable are the older borrowers as many took out interest-only mortgages before the financial crisis in 2008.
After April any SMI payments will only be paid as loan which 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. It will be repaid from proceeds after the outstanding mortgage is paid off. If there are insufficient funds to repay the SMI loan, the government will write it off.
The Department for Work and Pensions (DWP) started sending letters out to those affected in October 2017, advising that they could either choose to take up the loan option or stop receiving the support. Although, the DWP do acknowledge they have not written to everyone! As of 22 January 2018, only 6,850 claimants have agreed to take up the loan with a further 18,177 saying they might take up the loan option.
SMI hit the headlines last year when the government announced from 18th June 2017 they would be reducing the interest payable on the loan from 3.12% to 2.61%, the rate being the predicted Bank of England’s average mortgage rate and not on the individual interest rate. This would have caused more hardship to those who had a higher interest rate and those trapped in negative equity who have been unable to take advantage of new competitive deals.
A £100,000 loan would be looking at £217.50 per month interest payments.
Further information can be accesses by the government website https://www.gov.uk/support-for-mortgage-interest
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