This week brings a fundamental change in welfare support for struggling homeowners. For more than 70 years, homeowners, who have low incomes and who receive certain qualifying benefits, have been able to claim support from the government, through Support for Mortgage Interest (SMI).
However, from 6 April 2018 this support is changing. Rather than being paid as a free benefit, SMI will now be paid as a loan and any money claimed from this date onwards will one day need to be repaid, with added interest.
Existing claimants won’t be switched without their agreement and need to opt-in to the new scheme. But as the deadline for the switchover looms, there are growing concerns that only a small proportion of SMI claimants have signed up to receiving the loan.
Background on SMI
SMI is one of the lesser known benefits in our welfare system. But for those who are eligible to claim, SMI provides a vital lifeline that can help people to stay in their home and avoid repossession – ultimately helping to prevent homelessness. The good news is that these advantages will continue with the move to a loan.
It may seem strange that the state helps people to pay their mortgage. However, SMI only contributes towards interest payments on a mortgage or loans for essential repairs. So recipients aren’t able to use SMI to pay off the capital in their mortgage – although it will benefit people in the long-run if house prices rise.
According to government figures, in 2017 there were an estimated 124,000 people claiming SMI, costing the Exchequer approximately £170m per year. This makes SMI relatively small in terms of welfare spending, largely because there are very tight eligibility criteria for claiming. It is only available to low-income households who are out of work or of pension age and to be eligible you normally have to be receiving another qualifying benefit (such as Pension Credit or Employment and Support Allowance). The government also recently increased the waiting period for SMI, so working-age claimants now have to wait 39 weeks before they’ll receive any support.1
The final payments of SMI as a benefit are due to be made on 5 April 2018. Anyone currently receiving SMI as a benefit will have to choose to continue receiving it as a loan. New claimants are only being offered a loan.
Any SMI claimed from 6 April onwards will need to be repaid with added interest. This won’t be like a normal loan, however. The loan only needs to be repaid when someone sells or transfers the ownership of their home, although people can choose to repay the money sooner if they are in a position to do so. If someone dies in receipt of SMI then the cost will come off the value of their estate.
As we have highlighted previously, we feel it is fair to ask people to repay some of the support they have received when they sell their home. This is because, unlike renters claiming housing benefit, homeowners have a considerable asset – an asset which may have increased in value whilst they have been claiming SMI. And if someone doesn’t have enough equity in their home to fully pay off their SMI loan, then the Department of Work and Pensions (DWP) has said it will write off the loan.
However, we have always been concerned that changing SMI to a loan may make people reluctant to claim. And this appears to be what’s happening in practice.
The latest figures from the DWP show that, as of 21 March, only 13,000 people had decided to accept the loan, with 27,000 people declining it. These figures are worrying as it suggests large numbers of people, who previously relied on SMI, will now need to find other ways to pay their mortgage interest or they may risk being forced to sell their home. It’s worth noting, however, that DWP has said claimants who decline the SMI loan, may change their mind and can have SMI payments backdated to 6 April 2018.2
Perhaps more worryingly, are the numbers of people who are still undecided or yet to be properly contacted. The DWP figures suggest that with just over two weeks until the change, 14,000 people were undecided about the loan and 36,000 people either hadn’t received a letter about the changes (5,000) or hadn’t had their follow-up phone call to discuss the loan (31,000).
What needs to happen
Although there are some limited transitional protections in place, time is running out before most people have to decide on whether to receive SMI as a loan. This is a big decision and it’s important people receiving SMI are given sufficient time to seek advice before making a decision.
Ultimately DWP is responsible for making sure all claimants have been given enough time to make a decision and should ensure people are given an extension, if they haven’t been contacted soon enough. But we’d urge anyone who knows someone claiming SMI to check they are aware of the change and encourage them to seek advice as soon as possible.
1 People claiming Pension Credit are not subject to the 39-week waiting period
2 Support for Mortgage Interest Scheme House of Commons Briefing Paper, 2018