Support for Mortgage Interest (SMI) is changing on 6 April 2018 from being paid as a welfare benefit to being given as a secured loan.
Kit Malthouse, a DWP Minister, told Radio 4’s Moneybox on 17 March that he was “relatively confident we will be in a good position when it [6 April] comes.” He stated that people who did not apply for the new loan by then will be able to have it backdated.
But many of the numbers he quoted are worrying.
This article looks at the statistics and asks how many people will be able to get SMI backdated – and I suggest three steps the DWP should take to improve this situation.
Figures from the DWP
There are 92,000 people currently in receipt of SMI, according to Kit Malthouse. This is lower than had previously been thought. The current claimants can be divided into five groups:
- those that have accepted the loan;
- those that have rejected the loan;
- those that are currently talking to DWP/Serco about taking the loan;
- those that have been sent a letter by the DWP but who have not responded at all;
- those that have not yet been told about the changes.
Malthouse said somewhat opaquely:
just about 60% have decided to take the loan, decline the loan or are in conversations with [the DWP] about what their decision will be.
So 60% – about 55,000 people – are in one of the first three groups. Obviously, the numbers are changing and as the 6 April approaches more people will be completing the loan documentation. Malthouse didn’t clarify exactly how many people so far have signed up or have declined the loan but the OBR report published five days before said:
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
So it seems likely that there are 20-25,000 people who have so far rejected the loan.
The remaining 40% – about 37,000 – are in groups four or five. Malthouse said that 90% of people have had the first letter about the SMI change. That suggests 9,000 people have not yet been contacted by the DWP and 28,000 have had letters but not responded, perhaps not answering the Serco phone call that is supposed to explain the change.
These are very disturbing statistics
Not many people getting SMI will have a better alternative to these secured loans. The DWP’s original impact assessment said:
We assume that 5% of working age claimants … and 8% of those of pension age will choose not to receive SMI when it is converted to an interest-bearing loan (based on an analysis that indicates these are the proportions of each group who have access to funds from other sources, for example, beneficiaries or parents).
So for more than 25% of claimants to have rejected it already suggests a major communications failure by the DWP/Serco. People are choosing to reject the loan although DWP analysis shows they don’t have access to other funds to make up the mortgage shortfall that will result.
There are stories of pensioners planning to cut back on their expenses or sell possessions rather than “take out a loan to pay a loan” and “pay interest on interest”. The hundreds of comments below SMI will be a loan from April – should you agree to this? reflect these concerns.
These plans seem unlikely to work for long and so mortgage arrears will accumulate. Some of these people may lose their homes if they have made the “wrong” decision here.
Backdating – will this come to the rescue?
Paul Lewis on Moneybox asked Malthouse if the SMI loan would be backdated to April if people signed up later. Malthouse replied:
Yes, it absolutely will
which sounds clear… but he added:
If there has been any kind of mix up, people haven’t opened the envelopes, if we are still having trouble contacting people, then they can apply [later] and backdate.
So it’s actually not clear whether people that have rejected the SMI loan will be able to later change their mind and sign up with backdating. I think it’s essential that the 20-25,000 people who may not have made a good choice because of poor DWP/Serco communication can do this.
The DWP needs to rethink
With less than three weeks before 6 April, I think the DWP needs to accept that its communications programme has gone very badly. In my comments to Paul Lewis on Money Box after Malthouse’s interview, I made three points:
- the DWP should postpone the start date by 6 months and get back in touch with everyone who has not signed up so far;
- improve its communications so they are simpler, clearer and try to answer the many questions people have;
- consider making the SMI loan interest free. This would remove a lot of the suspicion people have about “paying interest on interest”.
UPDATE – new statistics as at 21 March are here: SMI watch – 25 March – no real progress in last week but there is very little change!
UPDATE – on the day SMI ends, I look at what happens if Serco hasn’t phoned you or if you said you don’t want the loan SMI – what happens if you haven’t agreed to take the loan?