The Office for Budget Responsibility (OBR)’s Economic and Fiscal Outlook paper, published today with the Chancellor’s Spring Statement, has this statement:
DWP has told us that all current claimants have been contacted about the intention to convert their [Support for Mortgage Interest] award into a loan and of those that have responded, over half have indicated they are not interested while less than a fifth have said they are. Only around 10,000 claimants have so far agreed to take up the loans from April, 90 per cent short of the 100,000 expected by the end of 2018-19.
Support for Mortgage Interest (SMI) helps people who aren’t in work with some of their mortgage costs. About half the people getting SMI are pensioners and many of the rest are disabled. That only 10,000 have so far agreed to take the new loan is a shocking admission by the DWP.
As I have argued in SMI will be a loan from April – should you agree to this? people getting SMI should not reject the new loan unless they have a better option.
I don’t think many people do have a good alternative to the new SMI loan – certainly not over half of them!
Why have so few people agreed to the new loans?
10,000 is an alarmingly low sign up rate. I think this is due to the way the DWP has handled this:
- It has been too slow in contacting people. The change to a loan was supposed to happen from April 6th, but the DWP has been forced to introduce some transitional arrangements for people are in the process of signing up for the loan.
- People are confused and suspicious about Serco’s role.
- People are worried that the loan may look cheap now but they can’t trust Serco or the government not to later change the rules, with student loans often being mentioned.
- Serco – who have no experience in administering loans, let alone secured loans – seems to have done a very poor job of explaining the details of the loan to worried and often vulnerable people.
Some facts about the new SMI loans which I don’t think the DWP/Serco has managed to properly explain to people:
- there are no fees to set up the loan and no credit check – you won’t be refused this loan;
- you don’t have to make any repayments to the loan unless you want to, even if later your situation improves so you could afford to;
- the interest charged on the SMI loan is linked to the “gilt rate” which is a low rate the government itself borrows at – this is always likely to be less than a normal mortgage rate;
- if there isn’t enough to repay this SMI loan when your house is sold, the rest of the SMI loan will be written off;
- the loan is from the government, not from Serco.
People may lose their homes because of this
I have heard too many people say they are too worried by the idea of a loan and that they will just have to manage without. Everyone getting SMI is already managing on a low income – cutting back permanently to pay the extra mortgage costs may not be possible for many of them and they will end up with mortgage arrears.
SMI doesn’t cover the full cost of most people’s mortgages, so many people will already have some mortgage arrear and, in some cases, the mortgage lender may already have a suspended possession order. How long will it be before the first people lose their homes because of this SMI change?