Support for Mortgage Interest (SMI) is intended to help people with the cost of their mortgage if they aren’t working. SMI has been given as a benefit that doesn’t have to be repaid so far, but from April 2018, it will only be given as a loan. The loan arrangements are described in legal terms in this government document.
In September 2017, the DWP started sending letters to people who currently get SMI to explain what is changing and say that they will receive a call from Serco within the next three weeks.
Who gets SMI?
SMI has been an important part of the UK benefits system since it was introduced in 1948. It helps with the interest part of the mortgage repayments, not the capital.
In 2016 there were about 124,000 people getting SMI help with their mortgage.
About half the people getting SMI are pensioners who get Pension Credit. These people tend to be on SMI for long periods.
The other half are younger but not working. They have to be receiving one of the following benefits: JSA; ESA; Income Support; or Universal Credit.
How SMI works in 2017 – two big problems
There have always been restrictions on the amounts that can be paid, but two changes in recent years have meant SMI has provided less help.
The first problem is the delay. You can’t claim SMI for 39 weeks – before April 2016 this was a much more reasonable 13 weeks. Many people don’t have enough redundancy pay, savings or insurance to get them through to this 39 week point, so by the time SMI starts being paid, there may already be mortgage arrears.
The second problem is that SMI is paid based on the average interest rate for new mortgages. In June 2017 it was reduced to just 2.61%. This is an unfair arrangement that takes no account of the fact that most SMI claimants have older mortgages and are likely to be paying much more interest than that. People who are not working often can’t remortgage on good rate new deals.
From April 2018, SMI becomes a secured loan
If you are currently getting SMI, you will receive a letter and an information leaflet. These are being sent out by Serco on behalf of the DWP. These will explain the “offer” of a loan. It is an offer because you don’t have to accept it, but if you don’t, your current SMI benefit will end in April 2018.
To accept the offer, you first have to have a telephone conversation that will outline your other options. Then you (and your partner if the house is jointly owned) will need to sign the loan agreement and a charge form. The documentaion you are sent is apparently over 60 pages long. The charge will be registered at the Land Registry.
Each month the loan will increase by the amount that is being paid to your mortgage provider. Interest will be charged on the loan at the OBR’s forecast of the gilt rate – at the moment this forecast for 2018 is 1.7% – it is always likely to be lower than any mortgage rate.
You can repay the loan, or part of it, at any time, with a minimum repayment of £100. Otherwise, the loan will be repayable when your house is sold or transferred to someone else, or on death. If there isn’t enough equity, the remaining balance will be written off, so this can’t become a problem for your children.
It’s a cheap loan – is it a problem?
You probably don’t have any better options, see below. But this loan from the government isn’t good news for two groups of claimants:
- if you are only temporarily out of work – perhaps while your children are very young or until you find another job – then having this secured loan will reduce your equity and make it harder for you to remortgage at a good rate in future.
- if you are a pensioner with an interest-only loan, you may have been hoping your equity will build up over the next few years until your mortgage ends. This SMI loan will reduce the chance of that working.
At the moment, mortgage companies are slow to repossess a house if there are mortgage arrears. It is possible that if you don’t have a lot of equity, this secured loan will mean your mortgage company may decide to repossess sooner… but it will be a while until it’s clear if this is a problem or not.
Should you agree to this?
Although it’s not good, in practice most people won’t have a better alternative to this government loan:
- it will be at a lower interest rate than you could get from banks or other commercial lenders;
- as you don’t have a job, there are unlikely to be any options involving remortgaging that would help;
- if you don’t take the loan and just let mortgage arrears accumulate, your house is likely to be repossessed;
- you don’t have to make any repayments to this loan, even if you start work.
So unless you have savings you could use or there are relatives who could help you, you probably should take it. If you are unsure, go to your local Citizens Advice and ask for their assistance, to look not just at this loan but at the rest of your situation: benefits, other debts etc.
Should you remortgage after a fix ends?
Selling the house – a hard choice
Options for repaying an IO mortgage
Nick Pearson says
Funnily enough this is very similar to a proposal myself and a friend from Shelter put forward during the reposession crisis of 1991. The difference was we suggested that the loan should be for the actual mortgage payments as well as the actual payments due to any secured loans. It is difficult to justify why the taxpayer should assist a homeowner to purchase a property which is likely to be a often rapidly appreciating asset, unlike a property that is rented. The analysis at the time was that a large percentage of people on SMI had been for over 2 years and had substancial equity. I have no idea if this is still the case.
Sara (Debt Camel) says
Most of the people getting SMI as they are on Pension Credit are likely to have significant equity. For working age, it largely depends on how long ago the house was bought.
The changes are complicated and people are likely to find them stressful, but they aren’t nearly as much of a problem as the current rate SMI is paid at or the 39 week delay IMO.
Ann stockton says
So it is ok for governments to pay landlords rent which covers landlords mortgage
So we will sell up and move over to the rental sector because we have no equity in our property and our final mortgage is up in 3 years
Our payment on interest only is less than 50 per week so we will rent at 125 per week ,this will cost the government more ?
There is no reel sense or fairness in this change
This is going to make people homeless in the future
I WILL BE VOTING FOR ANYONE BUT CONSERVATIVE IN THE FUTURE
denise case says
Agreed. Appalling! Have you signed the petition? http://you.38degrees.org.uk/petitions/stop-changes-to-support-for-mortgage-interest-smi
What else can we do?
Naomi Porter says
I think it’s appalling that people who have never used the system for housing benefit as millions have for years on end, have to take SMI as a loan. These people have mostly always worked and paid more money in to the system. Only a conservative government would do this. I can’t believe that Shelter made a similar proposal and I won’t be supporting them any more. I’ll do my own thing to support homeless people. Many people who were conned into voting conservative will suffer and it will add to the number of repossessions because that is exactly what the conservatives want. They believe they own everything and can do what they want with everything and everybody. They want it all back, they want total control, they are vicious thugs. It is the straw that will break the camels back -hopefully. Maybe some of the people that voted conservative the last time we had elections will wake up to this nightmare and look at what it going on with open eyes before more policies that damage home owners are proposed. Shame on Shelter too. Those that are lucky enough to have homes want homes for those that haven’t, this policy is just robbing Peter to pay Paul. It does nothing effective and it will only allow the conservatives to spin the figures if they can manage to do that efficiently. More lies and rubbish.
Sara (Debt Camel) says
Shelter’s view is explained here http://blog.shelter.org.uk/2015/07/changes-to-support-for-mortgage-interest-mark-fundamental-shift-in-welfare-provision/.
Sheila says
I will not be voting for the Conservatives again.
Gareth Morgan says
There is one improvement in the new proposals’, the 104 week limit for JSA goes. As for the rest, I’ve been doing some modelling about the effects on equity. It does depend on some factors that are difficult to forecast, like gilt rates and HPI, but for some long term claims there may well be an advantage in taking out a commercial Equity Release scheme.
Sara (Debt Camel) says
I did note that improvement but decided it was hardly worth mentioning as there is no 2 year limit in UC, is there? So JSA limit is becoming obsolete with the UC roll out.
Commercial Equity Release for someone on Pension Credit? That will be interesting. Another category of clients arrive at CAB that we aren’t allowed to give advice to…
Richard Saunders says
Will the loan cover the mortgage interest in full or only part of it, like the current SMI, which is based on Bank of England average mortgage rate (2.61% from June 2017)?
Sara (Debt Camel) says
If your current SMI is only covering part of the interest, this new loan will do the same :(
Steve Burns says
Will there still be a 39 week wait before the loan is available?
Sara (Debt Camel) says
So far as I know, nothing is changing apart from the fact that a benefit is being paid as a loan.
Laurel says
I am on Pension Credit and have a shared ownership property as I came late to the housing market – and I received a letter from the DWP last week informing me my aupport for mortgage interest would end in 2018. My mortgage runs for another 12 years so I doubt that there will be any equity left as I will already have paid interest to the mortgage company and also interest to the DWP. I am concerned now about how I will be able to pay off the mortgage as most of the equity will fo to the DWP, and I will be homeless. Any advice?
Sara (Debt Camel) says
Is your mortgage interest only?
Laurel says
Yes, with having to pay rent as well I couldnt afford a repayment mortgage.
Laurel says
Sarah, I have been in touch with my shared ownership company Devon and Cornwall Housing Association. They knew nothing about this change, nor did my building society. Devon and Cornwall Housing Association have said that it is not possible on a shared ownership property to take out a loan against the property. Those are rules laid down by the government who regulate housing associations.
Sara (Debt Camel) says
Hi Laurel,
I’m going to tell you what I think will happen here, but I am not an expert in housing law and I suggest you call Shelter’s very good housing helpline: https://england.shelter.org.uk/get_help to discuss this.
There is a provision in the SMI rules (paragraph 7.19 in the link at the top of this page) that where there is another owner of the property (the Housing Association in this case) a charge won’t be used but you will be asked to sign “an equitable charge” instead. the HA doesn’t (I think) have to agree to this. The end result for you will be much the same as a charge would have been.
Gareth Morgan says
The regulations say that only the legal owners within the ‘benefits unit’ (the claimants and family) have to agree to the equitable charge.
Lisa says
My question is that my Mother who is 81 years old and has COPD gets this benefit on her Pension Credit. She has a joint mortgage with my Brother who gets this benefit as well. Therefore they would need two loans, one each. However, it states that the loan needs to be repaid when someone dies, would this still stand in this situation if my Mother died, as the likelihood would be that some mortgage would still be outstanding as neither of them have any life cover to repay the loan on death?
Sara (Debt Camel) says
That is an interesting question. Mother / son is probably fairly rare but a couple with a joint mortgage wouldn’t be. My guess is that it will be repayable on the second death, not the first, but I am afraid they are going to need to ask about this. Could you come back with the answer?
Margaret Miller says
I was told by Serco the loan would have to be paid either when the mortgage finishes or when the house is sole, whichever comes first
Margaret Miller says
I had the telephone call from Serco and was told that the loan had an interest of 2.2% which is variable. I have an interest-only mortgage which ends in April 2019. Imwas also told that when my mortgage ends I will have to pay the loan off. I’m a pensioner, my mortgage payment is £35 month, a small amount but enormous to me. How come the information received is different from information given above
My endowment should cover my mortgage when it ends. I only took out £18.000 and been chipping away to get it down to £16.000. Any shortfall will be paid by my son.
——————————————————————————-
EDITED the 2.2% interest rate quoted is incorrect – it should have been 1.7%
Sara (Debt Camel) says
Do you know how much the endowment is worth if you cashed it in now? How much are you paying a month to the endowment? How much help from SMI are you getting at the moment? Are you having to make any payments to the mortgage at the moment?
Margaret Miller says
I’ve only got a year to go with endowment and it’s £35 month – my mortgage is interest only and I only pay £33 month to mortgage company. I know all the figures and know if I see the endowment to the end I’ll get my bonuses. I’m seeing my son tomorrow, I’m hoping he’ll help me out, I knew my mortgage would finish at 71, just didn’t expect to have to pay loan back after mortgage had finished, it’s like not finishing it for another year or so
Sara (Debt Camel) says
You do need to find the value of the endowment now – if it is large enough to repay the mortgage, then you wouldn’t need this extra loan. When you get the figures, you could go to your local Citizens Advice and ask for their help? Or this forum could be a good place to discuss the figures and your options: http://forums.moneysavingexpert.com/forumdisplay.php?f=15.
But the extra loan will be small, so hopefully, your son will be able to help you with that?
Maggie Miller says
Thank you Sara, I’ll speak to him today, hopefully he’ll help. It’s pensioners with a big loan left I feel sorry for. It was such a shock to get the letter from DWP, I’d no idea this was going to happen.
Sara (Debt Camel) says
I know, there are going to be 10s of thousands of pensioners getting this letter and most of them are going to be really worried :(
Wendy Grosse says
Hi
My dad is currently receiving help with the interest on a small equity release mortgage on his property. However with these changes coming in I’m thinking should he take out this other loan option? His concern is that the original lump sum is to be repaid once he is no longer here and if he took this loan this would need to be repaid too. He has some savings and he is fortunate that he manages OK on his pension etc so possibly with our help could just pay the interest on the original mortgage. Not saying of course that that is ideal but thinking this just looks like he will have 2 loans instead of one. I haven’t read all the small print yet as he has only mentioned it today, but am I correct? Thank you
Sara (Debt Camel) says
If he is currently getting SMI his choice is either to take this new loan or find some other way to pay the mortgage.
I think you should help him look at the options. My guess is the equity release product will be charging higher interest rates than the new SMI loan, so it may be better for any savings from him to reduce that? Or any help from you? If it is his savings, obviously you want to make sure he really does have enough money, some older people can just cut back and cut back, ending up with a very restrive life and their family don’t realise…
Gareth Morgan says
Is he, or the lender, actually getting interest paid on an Equity Release loan? He won’t be paying interest himself so is this providing extra spending money or is it offsetting the Equity Release interest accumulating? It’s not usual for DWP to accept that these loans qualify.
sarah says
I received my letter yesterday and was totally shocked. I am a pensioner now and have been unable to find a job even though I’m qualified and have lots of experience. I didn’t apply for SMI for a long time as I kept expecting to find work and when it became apparent I wouldn’t find a job and I’d used up all my savings, I applied for SMI 3 years ago. With that help I still have to pay £340 per month on a state pension. Its a struggle and I have not heated even one room of my house for 4 winters now as I can’t afford to. I buy food on the sell by date to get it cheaper and still I struggle. There is nothing I can cut back on and there is no hope of finding a job as I’ve tried now for several years. I hate the thought of taking out a charge on my house with the loan. It seems like madness. I am worried beyond description. What annoys me too is most home owners have worked and paid into the system and those on SMI didn’t choose to lose their jobs. But the vast sums paid out for housing benefits for many that have never contributed to the system is not being stopped. I know people who live rent free on that benefit and then get to spend their other benefits on decent food, heating, and anything else they might need. I really don’t know what to do.
denise case says
This is nothing more than a property grab by a very greedy government lacking in any form of compassion! It basically means that a second debt is placed on the first and two lots of interest! The only winners are the banks and the government. I am appalled beyond belief and extremely worried. I’m a pensioner with an interest only mortgage which has until June 2019 to run at its current fixed rate. I have more equity in the house than the bank does. I can’t downsize as I could hardly go any smaller, I have no endowment or savings or private pension and family help is dubious. It’s unbelievable that the government would do this to people who have little or no earning power, without any nod to their circumstances. It’s barbaric! Serco shares meanwhile are on the up!! I have not been answering their calls as I don’t know what to tell them except a few choice words I would not be able to hold back! They have actually been phoning so often it’s tantamount to harassment as far as I’m concerned! What to do? Is there no petition anywhere to sign? I have contacted Martin Lewis Money Saving Expert, but to no avail. What to do?
Sara (Debt Camel) says
The SMI problem is going to be pretty minor compared to your real issue which is what are you going to do when your interest-only mortgage ends in less than two years? Do you have a plan? See https://debtcamel.co.uk/interest-only-mortgage/
Sheila says
I wish the newspapers could get hold of all the comments on this page and publish them, I would like to see this Government put to shame.
Deni says
I wonder if there is any way this can be achieved. I find it very odd indeed that only the Mirror has seen fit to comment, as far as I’m aware. Maybe it’s because in the grand scheme of things so few people are involved and most of them are pensioners on pension credit-the least newsworthy section of society. Even Martin Lewis doesn’t want to know, it seems! It’s disgusting!
Sheila says
I think you should have contacted Paul Lewis – Money Box and not Martin Lewis. Paul Lewis has a website and you can contact him by email.
Sheila says
My mortgage is a Home Retirement Mortgage where I only have to pay the interest, my re-payments amount to £65.00 per month £15.00 of which I have always paid myself. I am now 81 years of age and I still have 40 years to go paying interest. I have not yet agreed to a Serco loan and I will go without to pay the interest myself as I refuse to let this Government like something nasty they have trodden in.
Sara (Debt Camel) says
Hi Shiela,
I think you should get some advice on this. Could you go to your local Citizens Advice? Although your reaction may be that the government is treating pensioners like yourself very badly, in practice the loan they are offering is very cheap and on very good terms. “going without” in order to avoid it may not be sensible idea.
Brenda Smith says
Received my letter yesterday and put off reading it until this morning. Basically, they are coming after the equity on my property, cheap loan or not; then if I have to go into care, they will take the rest.
I found myself homeless at age 58, through no fault of my own; my husband had got us into debt and our house was repossessed. I then managed to get a £60,000 mortgage @ 10% interest for a flat, as I had CCJs against my name, which I knew nothing about. I had to work two jobs to met the payments every month.
After four years house prices increased, so I moved from Buckinghamshire to the West Midlands and was able to put £60,000 towards an interest only mortgage on a 3 bed semi. This now has £60 to £80,000 positive equity, for which I have worked very hard indeed. I am on a low income and quality for Guaranteed Pension Credit.
I should have gone to the Council when I was homeless and asked them to rehouse me!
Gareth Morgan says
I am puzzled by the 2.2% that Serco are quoting. The regulations, although convoluted, seem clear.
They say:
15. (3) The relevant rate is the interest rate for the relevant period.
15. (5) The interest rate referred to in paragraph (3) is the weighted average interest rate on conventional gilts specified in the most recent report published before the start of the relevant period by the Office for Budget Responsibility under section 4(3) of the Budget Responsibility and National Audit Act 2011(a).
(6) The relevant period is the period starting on—
(a) 1st January and ending on 30th June in any year; or
(b) 1st July and ending on 31st December in any year.
The latest forecast by the OBR was published in March 2017 but there is expected to be another one at the time of the autumn budget in November.
The forecast in March covered a range of years and shows
Percentage change on previous year, unless otherwise specified
Outturn Forecast
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Market gilt rates (%) 1.9 1.2 1.5 1.7 1.9 2.0 2.2
If the single decimal place rounding is removed the table gives, with more precision:
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Market gilt rates (%) 1.88 1.22 1.46 1.66 1.85 2.02 2.16
There are two relevant periods in any year – January to June and July to September – and the interest rate is the rate for that period, as 15 (3) states. That is determined by the most recent report by the OBR before the start of that period. It will be November’s report when the new rules come into force but, for now, the latest figures are those in March’s report. If that figure was to be used, which seems the best information to hand, then the rate should be 1.7% for the year2018 / 2019. Serco seem to be using the rate for the year 2021 / 2022.
Why?
Sara (Debt Camel) says
excellent question… I will ask some people for copies of their letter… although the person that mentioned 2.2% said she was told it on the phone.
Ann says
“It is difficult to justify why the taxpayer should assist a homeowner to purchase a property which is likely to be a often rapidly appreciating asset, unlike a property that is rented.”
Why do you say a rented property – usually a buy to let – isn’t an appreciating asset? The owners of a rented out property usually own at least one other house they live in and many people even more. So if they accept tenants on housing benefit they are getting their mortgages paid and the house is appreciating! Whilst people like me – a pensioner who has worked hard all my life – who was made redundant at 58 is being penalised and will probably have to sell my family home. This doesn’t seem right.
denise case says
I completely agree! One law for landlords, property developers and the like and another for those like us. What gets me is the way this was sneakily put through by the government without going through Parliament, and not one paper apart from the Daily Mirror, as far as I’m aware, commented on it! Apparently, According to the Mirror, over half the number affected are pensioners so what does the government care! We clearly don’t matter. The government is not getting a penny from me. So far I have avoided speaking to SERCO AKA DWP as I wouldn’t be able to keep a civil tongue in my head!
Sheila says
I agree with your comments, I have spoken to SERCO and I gave the young lady a piece of my mind as to what I thought of this sneaky Government. What really annoys me is the fact that if SERCO cannot get their loan back due to little or no equity in my house, they can claim it back from then Government so they will never lose out. I sincerely hope this happens in many many cases and that they will have to pay the loan plus interest back to SERCO, and that is what I call Karma. We already have Food Banks, homeless living on the street, what next bringing back the WORKHOUSE for the poor and vulnerable.
Rant over.
Deni says
That’s one reason why SERCO shares continue to rise! They will never lose out! George Osborne has a lot to answer for. As does Age Concern for supporting this despicable fiasco. We should keep ranting- someone of note somewhere might pick it up and run with it. I repeat, the media silence has been deafening!
Deni says
http://you.38degrees.org.uk/petitions/stop-changes-to-support-for-mortgage-interest-smi
Have you signed the petition?
Sheila says
Yes I have signed the petition
B Caffrey says
I’m in the same Pension person boat, wondering how long after this Tory invented policy will result in Serco robbing me blind of my long gathered equity. Vicious Tories are taking away the natural right of home security, so much more important in retirement, and I am not in the slightest surprised by the almighty panic I am reading on these pages. So with mass pensioner homelessness in prospect, those Tory enemies of the people will not want confused pensioners staggering around the streets, because that would bring their filthy lies into the light of day. And the upshot will be the reopening of the Workhouses, to put us all away … Abandon Hope all Ye Who Enter This Place.
When will Tory Voters ever wake up to the fact that Tories are the Enemies of the People. and that when the French had their glorious Revolution when they had been starving on the streets, we should have done the same. And … what’s different now to then?
Anyone who doesn’t like my words of truth should at least understand and accept that it is Tories who are launching this full scale attack on defenseless poorer pensioners. Get real, and stand up with one voice and fight back!
Sara (Debt Camel) says
You could write to your MPs – email addresses here: http://www.parliament.uk/mps-lords-and-offices/mps/.
denise case says
Thank you. I intend to do just that and would like to copy in some of the comments here to show the strength of feeling. I have already drafted a letter to my MP expressing my outrage and I think we all should do the same, copying in all our views as expressed here. Similarly, as someone said above, the media should be told. Does anyone have any other thoughts
Sheila says
After reading the comments made by Shelter regarding why should homeowners pay for the less fortunate, 62,000 Pensioners at present are affected by this new law and we have all paid tax when we worked and it did not enter my mind to complain about my taxes being used to help the vulnerable and poor, in fact we still pay tax in the form of VAT. Feel free to copy any of my comments and I wish you luck.
Laurel says
I believe we should form a pressure group or a change.org petition to draw attention to this disgraceful change in the welfare benefits.
Especially as it mostly affects people who are by definition the poorest members of society, pensioners on pension credit. Added to this it will fall disproportionally on elderly women as they make up the majority of pensioners on pension credit because of historical employment due to part time working and raising families. Added to this the short notice and lack of preparation for any training with mortgage providers/ housing associations make pensioners very vulnerable to either being forced to agree, or going without, as many of us will choose to do, having invested in our homes. We should also draw this to the attention of the Shadow Minister for Work and Pensions.
denise case says
I agree, Laurel. The whole thing is an outrage. I have drafted a letter to my local MP who is unfortunately not only Conservative but standing trial for election expenses fraud next year! Just to add insult to injury! I don’t expect much joy from any reply. What do you suggest? I posted on Facebook twice and gathered a few angry comments about the whole thing but it’s not enough. A change.org petition may be the way to go.
Sheila says
I totally agree with you, I would rather go without than accept a loan from Serco. I am 81 years of age, and can do without problems like this, thanks to the DWP who are really scraping the bottom of the barrel with this
Gareth Morgan says
DWP have now accepted that the loan rate, at the moment, should be 1.7% and they’re amending the script for calls.
Sara (Debt Camel) says
well done – I wonder where the 2.2% came from?
Gareth Morgan says
It’s the last rate showing in the OBR table but it’s for 2021/2022
Chrissy says
How come the dwp are doing this to people they pay 60 per week 240 per month help towards my dads mortgage yet they pay 750 pounds for our neighbours private rent,and my dad worked all his life yet neighbours get all that paid wonder if they hit private rents
Poppy says
I am 60 live alone and have border line personality disorder hence being on benefits. I get help with my mortgage but have no idea how to work out how much this will cost me if I accept the loan, (I see no other way than accept until I am ready to sell) there is enough to cover the mortgage loan when I sell, and I have no family, so all in all I am alone and have no idea who to ask for the best advice.
I am not against paying something for the help I have received, but I know people who rent and get much more help than me, they have no penalties applied to their payments, so why should we.
I thought the persecution was over, seems like it is hotting up again.
Sara (Debt Camel) says
CAn I suggest you go to your local Citizens Advice? Just talking to someone else about it may help you.
Poppy says
I would but it means a 25 mile trip, and telephoning them is almost impossible, plus they were never much help with my benefits questions.
It’s the figures I need as to how much they will take maybe age concern might be better (then does anyone know) it seems even the building societies are in the dark pretty much.
Always, always a fight to just get on with life.
Sara (Debt Camel) says
The figures should be straightforward. If you are getting £90 a month help towards your mortgage at the moment from SMI, you will still get the same £90, but that will be recorded as a loan. So by the end of a year you will have borrowed 90 * 12 = £1080. The interest rate charged on the loan will be 1.7% which is likely to be less than you are paying on the mortgage.
Poppy says
Thank you, much appreciated.
Have to do some sums, don’t suppose the Cons will back track on this so have to weigh it all up.
Sara (Debt Camel) says
Good idea, getting real numbers makes it easier to think about.
Gareth Morgan says
Not quite, the interest is compounded monthly. “15(2) Interest at the relevant rate shall accrue daily, with effect from the first day a loan payment is
made to a qualifying lender or the claimant under regulation 17, and shall be added to the
outstanding amount at the end of each month (or part month).”
What that means, using your example figure of £90 a month loan, is:
Month 1 – £90 – plus interest added of 13p from £90 x 1.7% divided by 12. Amount owed £90.13
Month 2 – £90 – plus interest added of 26p from (£90 + £90.13) x 1.7% divided by 12. Amount owed £180.38
At the end of the first year, that means the total owed is £1,090.00.
It’s slightly complicated by the fact that the calculation of the loan is weekly for Pension Credit and working-age legacy benefits but monthly for Universal Credit while the interest calculation is always monthly.
Sara (Debt Camel) says
Thanks for doing the detailed sums, Gareth!
So the interest added in the first year is only £10 in this example. Naturally the interest will increase as the years go by and the loan gets larger, but this example does show that this SMI loan is not expensive!
I don’t like this benefit being turned into a loan, but I think it’s important that people don’t automatically reject it as it may be the best they can do.
Gareth Morgan says
It’s the joy of compound interest (remember the Mary Poppins song) that make it get increasingly expensive as time goes by. Even though the loan amount may stay the same (it won’t, because gilt rates will change but they may go up or down) the interest on the interest will grow. Here’s a 25-year forecast using the £90 a month (£41, 379 mortgage) figures in the example:
Interest Total recoverable
Year 1 £9.77 £1,090.00
Year 2 £38.22 £2,198.67
Year 3 £85.67 £3,326.34
Year 4 £152.44 £4,473.32
Year 5 £238.87 £5,639.96
Year 6 £345.30 £6,826.59
Year 7 £472.07 £8,033.55
Year 8 £619.53 £9,261.18
Year 9 £788.02 £10,509.85
Year 10 £977.92 £11,779.91
Year 11 £1,189.59 £13,071.74
Year 12 £1,423.40 £14,385.69
Year 13 £1,679.73 £15,722.16
Year 14 £1,958.97 £17,081.53
Year 15 £2,261.51 £18,464.18
Year 16 £2,587.75 £19,870.53
Year 17 £2,938.10 £21,300.97
Year 18 £3,312.97 £22,755.92
Year 19 £3,712.78 £24,235.79
Year 20 £4,137.95 £25,741.02
Year 21 £4,588.93 £27,272.04
Year 22 £5,066.15 £28,829.30
Year 23 £5,570.07 £30,413.23
Year 24 £6,101.14 £32,024.30
Year 25 £6,648.82 £33,662.97
Gareth Morgan says
It is, in effect, a compulsory Equity Release scheme. That means it has the same characteristics and (often unfair) criticisms that can be applied to it.
Poppy says
I am not agreeing with this far, far from it – but it seems we have no choice in this, much like all the other acts this gov have made against those facing hard times.
If my house has enough collateral to cover the the SMI loan is that better at the moment then moving when I am not in the frame of mind or health to do so (should I look upon the years of free help I have had as a bonus) and swallow this bitter pill – only I can make that decision and it’s a difficult one to make.
The problem also (to my mind) is will the BS) be keen to lend/extend mortgages with this added debt/loan being tacked on.
My mind is in turmoil.
Poppy says
Will they be able to alter the interest rate as they see fit or stay within the base rate.
Sara (Debt Camel) says
The interest rate is tied to the rate of interest that the government pays on its own borrowing, known as “the gilt rate”.
In the past, this has always been lower than mortgage rates tend to be.
patricia dunne says
Hi,
I just started the petition “Stop changes to support for mortgage interest (SMI) ” and wanted to ask if you could add your name too.
This campaign means a lot to me and the more support we can get behind it, the better chance we have of succeeding. You can read more and sign the petition here:
http://you.38degrees.org.uk/petitions/stop-changes-to-support-for-mortgage-interest-smi
Thank you!
Patrica
Please forward to as many people as possible asking them for support.
denise case says
Fantastic!! Going to share madly!
Sheila says
Thank you Patrica for starting the petition, I have just signed and hope it is successful
Laurel says
Thank you thank you thank you. I felt too depressed to do anything. It needs to go on You And Yours, and Womans Hour, if anyone has the energy.
Poppy says
I can’t absorb anymore at the moment, just when I thought things might get a little settled, this comes along.
To be honest I don’t think there are enough people this will bother, they say some 140.000 are on SMI – which is small fry in the bigger picture, (sadly)!!
I will have NO option other than to go along with it for the time being, (I think it adds insult to injury to charge interest as well) talk about kicking a horse – when it’s down…
I also feel depressed, so was damn upset this morning I bashed the car into the garage wall and ripped off a part of the front bumper, still who cares.
alice says
“It is difficult to justify why the taxpayer should assist a homeowner to purchase a property which is likely to be an often rapidly appreciating asset, unlike a property that is rented”
I don’t see how that can be the excuse for this draconian policy? The justification for the old SMI was economic sense, secure housing and less cost to the taxpayer. If this change is the short sighted policy making we can expect, then the right to claim Housing Benefit for the rental part of part rent-part buy could also be under threat as this too, helps people to afford (at least that part of) their home ownership).
I see some immediate points that rubbish their theory:
1. Help to buy ISA’s essentially contribute to buying an asset and these are government subsidised.
2. Compound interest is being charged on the loans. At that point it isn’t assisting anyone financially; just creating financial problems for the future.
As a side issue it also means that the DWP are making money on their lending. Apart from this use of compound interest being dubious from an ethical point of view I’m also not sure if they should be straying in to the realms of consumer credit…
3. MPs bought homes with large contributions from their expenses; that was taxpayer’s money. The poor are always treated as if they deserve to be poor, therefore undeserving of any help that might allow them to better themselves . Meanwhile the rich are portrayed as if their affluence is somehow meritorious and therefore deserving of all the hand-outs they can get, irrespective of the lack of need.
4. The relatively low cost of adding SMI on as a benefit was sensible in that it kept people in housing at low cost. The flip side of that is repossessions with associated costs, court costs, people losing their homes and possessions, the added burden on councils providing emergency and temporary housing, rough sleepers, hugely increased Housing Benefit/Universal Credit costs and the inevitable cost to the NHS from mental health deterioration due to the stress to claimants.
alice says
Some quick figures to illustrate what the bare housing costs will be if those previously on SMI lose their homes:
The cost of SMI on a mortgage of £100,000 is around £217 per month or £50 per week. The cost of temporary accommodation in a PSL is around £190 to £270 per week. Emergency B&B around £300 per week per person. City of Bristol LHA rate for a 2 bed house £151 per week (Housing Benefit).
I have been a little dismayed by some of the comments about Housing Benefit claimants with some value judgments made. Needless to say, I don’t think this is the time to be turning on those in even less secure rented housing. The changes forced on them are equally short sighted and also potentially disastrous. This is the time for people to unite against this government’s welfare reform and economic policy. We should not divide ourselves up in to the “feckless workless” versus “hardworking” or “renters versus buyers” type categories that the Tories would have us subscribe to. Like Sara I am an adviser and I see how these policies affect the low waged singles, the vulnerable, low income families and the unemployed job seekers. No-one affected by welfare reform is getting fair treatment here!!
Sara (Debt Camel) says
I completely agree.
Dee says
My blood boils with this new legislation.
I worked all my life. Became seriously ill and have triggered health conditions. I’ve managed to keep on top of my mortgage repayments by cutting out any kind of social life and no trips to hairdressers and other ‘luxuries’
I’m unfit for work and don’t think I ever will be able to work again.
I feel mortgage payers are being discriminated against. As far as I’m aware if I was in rented accommodation all my rent would be paid by DWP , if I returned to work as a rent payer I wouldn’t have accrued any debt. ( also in the long run the landlord benefits too)
However as a mortgage payer if I returned to work , whatever the DWP have contributed in SMI would have to be repaid.
The government is happyly promoting buying your own home, but when your luck turns they will stitch you up.
So here’s a thought…. I sell my house, I will be denied any benefits, I live on the equity until it runs out, I then reapply for housing benefit for a rented house. Surely that’s going to cost DWP more money?
It’s blatant discrimination .
Poppy says
I agree with this should not be a rented/homeowner debate, we each choose the path we go down, in some circumstances some have no choice, but it is obvious that owning a home and being on benefits has become a dirty resource (and yet it was this Gov who encouraged people to do just that.
I agree with Dee if I sell my home I will be not allowed benefits, until the money runs out then what – knowing the way things are at the moment there will probably be no help at all.
Why should people who have kept their heads down asked for nothing for over 40 years be penalized for being ill and living in their own home.
Things today when buying a house are different, people get insurance for the bad times, I am not sure that was thought about years back, jobs were a plenty, and the welfare state worked without any discrimination.
It stinks that ‘we’ are being targeted, for doing what was once the ‘ethos’ of this Country, put your money into bricks and mortar.
Heather Enid Wells says
I am on Pension Credit, and from the letters I receive from the Dirty Washing Parade oops Department of Work and Pensions, it appears that my SMI is taken off my Pension Credit in the first place. So when SMI ends, does that mean that that portion of my Pension Credit will be restored and paid to me?
Sara (Debt Camel) says
I don’t think SMI reduces your Pension Credit at the moment. You could take the letters to your local Citizens Advice and ask what is happening.
Dee says
It’s DISCRIMINATION in a nutshell.
Don’t buy a house : you are responsible for upkeep and maintenance. If you become unable to work, woe betide.
You will either have had to sell up or become in arrears with mortgage payments, forcing reposssesion or become in debt ….
Rent a house: not responsible for maintenance. Rent will be paid for you, return to work, no debt… quids in there.
I wish I had never got a mortgage, because of serious health issues I’m unable to work, I already go without so much, the stress this is. Siding might just about finish me off. Discrimination by the government because I don’t rent.
Equality? What equality?
Fairness for all? That will be a no then.
Sara (Debt Camel) says
There was a bit on the SMI changes on Moneybox on Radio 4 today, see http://www.bbc.co.uk/programmes/b099tf51. I#m not sure how long that link will work for.
Poppy says
Listened. nothing new really outside of saying the form we have to fill in is 64 pages long, and likely to put a lot of people off coupled with UC coming in lots of people are going to be lost with all the change.
Some people are going to be worried to death over this, what a vindictive government we have targeting those who need the most help.
I wonder who is going to buy this influx of property that is about to come on the market, house sales in the North are struggling as it is.
Still no use complaining is it, not like anyone is listening or really that concerned.
B Caffrey says
Dear Poppy
I’m about to lose SMI myself, and like many others on here, the weekly amount I will lose is very small in comparison to what housing benefit would pay to cover equivalent rent robbery. In fact, the £30 weekly payments contribute only about half of my monthly payment to the Building Society.
There is however real value in complaining … the question then is to whom best to complain to achieve concessions or other change impact. Sadly, I am not convinced that Debt Camel protestations are likely to be noticed, and brought to the attention of relevant sympathetic politicians. Perhaps, in unison, we all need to scream out louder.
denise case says
Totally agree! I have signed the petition and share it every day on social media and have shared vis email. I have also told my friends and others who are all suitably disgusted and appalled. Sadly the petition doesn’t seem to be getting much exposure as last time I looked, only just over 100 people had signed, the latest being a friend of a friend of mine! Writing to the national press maybe. I posted earlier that I had written to Martin Lewis about it but to no avail. My MP is under investigation for a fraud matter and anyway is a Tory. I can be found on Facebook under deni case if you’d like to meet up there.
Poppy says
My MP is Tory and a supporter of the benefit cuts/changes always votes for them.
I have written to ask questions and complain – but it seems to be falling on deaf ears, even noticed on some help welfare boards people with their own property get little support/replies to questions asked.
The link to the BBC moneybox programme was 4 minutes in total, and really gave no help or hope, I think the trouble is a lot of people (far more) then who get help with their mortgage do not understand how SMI works, they think we are getting our property paid for, and that angers them. That people have worked for their house, and fallen ill or lost their job through cuts backs carries no weight, we are all tarred with the same brush, comments like ‘if you can’t afford to buy – then don’t’ are rife on the internet…they forget many bought long before the mess this Country is in, reared its ugly head.
Poppy says
The Building Societies Association reply/views on the SMI changes – guess they were ignored although they are not fully against it.
https://www.bsa.org.uk/BSA/files/98/981003b5-f943-4744-8b04-ea49feaf681a.pdf
denise case says
Interesting. Thank you. Not much at all said about senior citizens on pension credit, sadly. That should be an exempt category! I am promoting information in the media and the petition as much as I can. It needs more of us involved however.