Government plans to change mortgage benefits could affect 140,000 households, experts say.
In April 2018, the Department for Work and Pensions will stop paying Support for Mortgage Interest (SMI), a benefit originally designed to assist pensioners and the unemployed with housing costs.
From next spring, SMI will change from a benefit to a loan and will be secured by a second charge on the claimant’s property.
The loan will need to be repaid along with interest when the house is sold or ownership is transferred.
Although the DWP is making efforts to contact those affected to inform them of the changes, few are aware of how the developments will affect them. Some experts fear that withdrawal of the benefit could see people fall into arrears, face repossessions and experience increases in household debt.
Building Societies Association head of external affairs Hilary McVitty says: “The DWP’s own research into attitudes towards SMI shows that knowledge of the scheme is limited among claimants.
“Around 50 per cent of them are in receipt of pension credit and some of these may be vulnerable consumers.
“It is essential that customers are well-signposted to organisations such as the Money Advice Service and Shelter and encouraged to speak to their lender if they are concerned that they may fall into arrears.”
SMI claimants will need to apply for the loan next year in order to access the money. McVitty warns that homeowners unfamiliar with the changes may fail to apply in time to avoid arrears.
She says: “It will be up to claimants to ‘opt-in’ to the terms of the loan. Any who don’t engage with these changes will stop receiving the benefit in April and could risk falling into arrears at that point.”
A UK Finance spokesperson reassures homeowners that lenders will do what they can to avoid arrears and repossessions. He says: “Lenders will always work with a borrower experiencing payment difficulties to help them recover their financial position and avoid repossession of their home.”
