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Time running out for homeowners set to lose mortgage income support in April

Trying to keep a roof over their heads … 124,000 families rely on Support for Mortgage Interest to directly help with mortgage payments.
Trying to keep a roof over their heads … 124,000 families rely on Support for Mortgage Interest to directly help with mortgage payments. Photograph: Leon Neal/Getty Images

Last May, James Martin* decided to give up work and look after his mother full time after she was diagnosed with cancer. A few months later, his father suffered a stroke, leaving the 49-year-old as the main carer for both parents. With income support and carer’s allowance, he receives £108 a week, meaning that the chances of paying his mortgage every month is remote. There is some relief, in that he receives the Support for Mortgage Interest (SMI) benefit, a payment which has been in place for the last 70 years to help financially constrained homeowners with their repayments.

From April, however, it will stop and be replaced by a new “second mortgage” scheme where the government offers to loan people the money, which will then be repaid later.

For Martin, and many of the 124,000 other people who receive it, a large proportion of whom are elderly, the change creates only uncertainty and leaves many questions unanswered.

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“We have an ageing population and are going to need an army of carers. Family members who give up jobs are making a sacrifice to do the right thing, and when they qualify for mortgage interest support, it is of great help,” he says.

Without the support, he would not be able to pay the mortgage, he says. “It is make or break.”

The benefit – which costs the state £205m a year – has been described as a lifeline to people on low incomes, some of whom would be at risk of having their homes repossessed but for the payment.

The present SMI scheme helps homeowners on certain benefits pay the interest on their mortgage with the money being sent directly to the bank. It was introduced after the second world war as a working-age benefit that would offer a short-term lifeline to people who had lost their job or become ill and were trying to get back on their feet.

Critics argue that it is not the role of the taxpayer to subsidise other people’s mortgages and acquire a property that may be passed onto their children after their death.

The new system will introduce a state-backed loan which will be secured against the mortgaged property. Interest will be added every month to the total amount the person owes. The longer someone has the loan, the more interest they will need to pay back, so those who claim for several years could easily face bills running into thousands.

However, the mortgage holder does not have to pay it back until the property is sold, or transferred to someone else, although they can make voluntary repayments.

The government has come under heavy criticism for both the change and the way it is being administered.

Two weeks ago the Observer highlighted the growing anger as thousands effectively face a “second mortgage”. We also revealed figures showing that just 6,850 households had signed up for the scheme out of the 124,000 currently receiving the SMI benefit. In addition, not all of the people who are affected – including Martin – have been contacted about the changes.

Of those who receive the benefit, some 57,000 are pensioners. Age UK, the charity which works with older people, says it is becoming increasingly worried about the impact that the changes will have. It says: “Age UK has started to hear from those who are finding it hard to get the information and advice they need, or say they won’t take a loan and will have to cut back. People are receiving these benefits because they are on a low income, so spending more on mortgage interest could cut into money for daily essentials such as heating and eating.

“If they decide to take out the loan, the fact that it will build up over time could restrict their ability to move, or to meet other expenses, such as care costs, in the future. We are concerned that this change will cause hardship and believe the government should think again.”

Mutual insurer Royal London has been a consistent critic of the new measures and has called for the changes to be stalled in order for more information to be issued.

According to its director of policy, Steve Webb, a situation could arise where someone who receives the benefit may not be aware of it ending and, instead, be told that they are in arrears by their bank once the payments stop, which could affect credit ratings.

“The government is running out of time to enable over 100,000 people to make an informed choice between taking out a second mortgage and losing their benefit,” he says.

“For those who do not engage before April, the first they may understand of the change is when they get a red letter from their mortgage company demanding action on arrears. The DWP should provide the public and parliament with an update on how many people are still to register – covering up their failure is simply unacceptable.

“It seems increasingly likely that tens of thousands will lose their mortgage help in April, in part because the government has been so slow to engage with them and provide them with the help they need to make a choice … the new system will erode the one financial asset they have left – the equity in their home, leaving them even more vulnerable in future.”

The DWP says that 98% of people who claim SMI have been contacted, but the department does not respond to a query for an updated figure of how many have now taken up the loan, nor whether it is concerned at the apparent low level of take-up.

In a statement it says: “Support for mortgage interest is being reformed so a safety net is still in place to protect homeowners from repossession when they need it, and to make it fair to the taxpayer who funds it. We are contacting claimants in enough time for them to reach a decision and signposting them to independent advice.”

“Over time, someone’s house is likely to increase in value, so it’s reasonable that anyone who has received financial help towards their mortgage should be asked to pay that back if there is available equity when the property is sold.”

* His name has been changed