2017 has seen the first base rate increase for several years, changing the interest rates paid by many on variable rate mortgages within days. Yet some will be looking ahead to 2018 as a year when further changes could affect their mortgage situation – and this does not refer to any future base rate rises. Instead, changes are coming to the Support for Mortgage Interest scheme (SMI) provided by the Government.
This scheme has been around for many years, but the Government shake-up will see it end next April. SMI is a benefit given to people who receive some income-related benefits. These include Jobseekers Allowance and the Pension Credit. The benefit is designed to help those who receive these benefits make sure they can meet their monthly mortgage repayments.
What is changing?
From April 2018, the benefit will be replaced by an SMI loan. Everyone who is currently eligible for and receives the relevant benefits will be eligible for the SMI loan. Those who accept the loan will have it secured on their property. There is no need to repay this loan or any associated interest until the property is sold or ownership of said property is transferred.
How will people be affected?
Many elderly people receive this benefit, as do those on a limited income, i.e. those who are out of work. While there is no immediate sum to pay for those who accept the loan, a significant debt could be run up over the course of a few years, once the loan and its associated interest are considered.
“These changes have come in very quietly,” said Darren Pescod, CEO of The Mortgage Broker Limited. “A lot of attention has been given to the recent Budget, to the rise in the base rate, and to the general state of the property market. But very few people seem to know about this huge change to the Support for Mortgage Interest scheme, which is very worrying.
“People who are currently receiving the SMI benefit should soon receive a letter explaining the changes. It looks as though pensioners may be worst-affected by this, particularly if they currently have an interest-only mortgage. Even though they will not need to pay anything back until the property is sold, it still raises the prospect of a loan plus interest that must be paid back when this happens. This would be added to the existing capital they would need to pay back.”
It is worth noting the loan will be written off if the claimant does not have any equity in their property once it is sold. However, since there have been few headlines about the changes to SMI, it is likely the letter explaining these changes will come as a shock to some of those affected.
“The best advice for all those affected by the changes would be to research their position and to consider the available options,” added Darren Pescod. “This loan will not be ideal for everyone.”
View all posts by The Mortgage Broker 
