An estimated 135,000 low income pensioners and working age benefit claimants could face losing their homes due to the scrapping of the Government’s Support for Mortgage Interest Scheme (SMI), Royal London has warned.
Currently, SMI is paid to low income claimants on certain benefits to cover mortgage interest payments but will be replaced from April 2018 with a second mortgage that will need to be repaid with interest to the Government.
There has been no confirmation of the interest rate, but the insurer claims it will be around 2.2% and could be higher if the Bank of England base rate rises.
Claimants are receiving letters from the DWP informing them of the change and supplying loan application forms, Royal London says, but the documents are unclear about the interest rate and provide little help on how to decide.
The insurer warns that those with interest-only mortgages could be particularly hit as they face having to repay the mortgage capital as well as the government loan at the end of the term.
It is also claims that the extra interest payments on top of the mortgage could push borrowers into arrears.
Helen Morrissey, personal finance specialist at Royal London, said: “Up until this point SMI has been paid as a free benefit but any payments made from April 2018 will now need to be repaid with interest – this is a massive policy shift.
“The Government needs to make sure that people have the help and advice they need to decide whether or not to take out a second mortgage to pay for this. But instead, thousands of people are getting letters which miss crucial details such as the interest rate on the mortgage.
“The Government is pointing people in the direction of the Money Advice Service and Citizens Advice but they can only provide guidance as opposed to tailored advice. Some people will find the process too daunting and will lose their mortgage help next April, with a risk of repossession.
“Others will sign up, but this will make it even harder for those with interest-only mortgages to clear their outstanding balance at the end of the mortgage.
“While those able to do so should seek regulated financial advice about their options, the Government must ensure that those unable to pay for this advice are given adequate support so they can make the right decision for them.”