Homeowners who currently receive financial help from the government with their mortgage interest will have to apply for a loan if they want to continue to be supported from April.
Around 124,000 people who claim Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance (ESA), Pension Credit or Universal Credit are paid Support for Mortgage Interest. This covers the cost of mortgage interest on up to £200,000 of your mortgage, or £100,000 if you’re receiving Pension Credit or started claiming another qualifying benefit before January 2009. The money will usually be sent direct to your lender. Support for Mortgage Interest payments made prior to April 6, 2018 do not have to be repaid.
Support for Mortgage Interest is being withdrawn as a benefit for new or existing claimants from April 6, 2018.
It will instead be replaced by a loan on which interest is charged. This rate is equivalent to the ‘gilt rate’, or the rate of interest on government bonds. It may be different to your mortgage interest rate and will be variable, so may go up or down over time, although the rate you pay won’t change more than twice a year.
Unlike a normal loan, regular repayments are not required, but the loan is secured against your home. Interest is added to the amount owed until the loan is either repaid or written off. If you want to repay it earlier, you can make minimum voluntary repayments of £100.
Loans will be repaid upon the sale of a claimant’s house; or on a claimant’s return to work if the borrower can afford it, or when they die. If there isn’t enough equity in your property to repay what you owe after the property has been sold and the mortgage repaid, then the remaining amount of the loan will be written off.
What you need to do
If you’re currently receiving SMI as a benefit, you should receive a letter from the Department of Work and Pensions informing you about the loan and any other options available to you.
If you decide you want to apply for the loan, you will need to fill in the documents you’ve been sent and return them within six weeks. According to the government, applying for the loan won’t require a credit check and therefore taking one out won’t affect your credit rating.
If you decide you don’t want to accept the offer, then you don’t need to take any further action, and your SMI will stop from 6 April 2018.
Support for Mortgage Interest (SMI) payments are changing