More than 90% of homeowners who are part of the Support for Mortgage Interest scheme face losing up to £5,000 a year within weeks when the benefit is replaced by a loan – if you're affected, you must act NOW.
An estimated 124,000 households currently receive the Support for Mortgage Interest (SMI) benefit, but from Friday 6 April this will become a loan instead – and payments will stop altogether unless you sign a loan agreement form.
The Government says that as of 12 March it had yet to contact just over 5,000 of those households, but it insists everyone WILL receive a letter by 6 April.
The latest available figures show that, as of last month, only 10,179 of the 124,000 receiving the SMI benefit had agreed to take out an SMI loan to replace this.
For full help on what to do if you're struggling to pay your mortgage, see our Mortgage Arrears guide.
Martin: 'Don't cut off your nose to spite your face – sign the forms'
Martin Lewis, founder of MoneySavingExpert.com, said: "Many people will understandably be unhappy with the shift from a benefit to a loan. Yet that's a political issue. Even if you're angry, don't cut off your nose to spite your face.
"From a financial perspective, if you don't have any other way to find this money, and you need it for your mortgage repayments, then make sure you sign the forms for the loan, or within weeks you'll stop receiving anything. This could leave you unable to pay your mortgage and ultimately risks repossession.
"It's worth remembering too that this loan is at a relatively low interest rate, under 2% currently – though if they'd just made it interest-free it would've made many less scared – and you won't have to make any repayments; it is simply money that is repaid when your house is sold or transferred."
How does the Support for Mortgage Interest scheme work now?
The SMI scheme helps those on certain benefits pay the interest on their mortgage or some home improvement loans. It doesn’t provide help with mortgage capital repayments.
You can get help with the interest payments on up to £200,000 of your mortgage, unless you receive pension credit or began receiving a qualifying benefit before 2009, in which case the cap will be £100,000.
The Government presumes your interest rate is 2.61%, and works out how much SMI you're eligible for based on that. (If your interest is higher than that, SMI will pay the first 2.61%.) Here's an example of how it works (assuming an interest-only mortgage):
If you've a £100,000 mortgage with a 4% annual interest rate, over the year you'd pay £4,000 in interest on your mortgage. The SMI benefit would pay for interest of 2.61%, so you'd get £2,610 a year in SMI benefit. A proportion of this would be paid directly to your lender each month.
You usually need to be claiming income support, jobseeker's allowance, employment and support allowance, universal credit or pension credit to be eligible:
- If you applied for one of these benefits before 7 July 2017 you would have been asked about housing costs to see if you were eligible for the SMI benefit and would not have made a separate application.
- If you applied for one of these benefits on or after 7 July 2017 you would have been offered SMI as a loan rather than a benefit, so this change won't affect you.
How does the change from benefit to loan work?
From 6 April onwards SMI will be paid as a loan, rather than a benefit, meaning in most circumstances you will need to repay what you borrow, plus interest.
The interest rate can change twice yearly, on 1 January and 1 July, and will be calculated as compound interest (ie, you'll be charged interest on the interest). It is forecast to start at 1.5% from April 2018, and will change to 1.7% from July 2018. You'll receive a statement each year saying how much you have borrowed and how much interest has been added.
Although it's a loan rather than a benefit, the amount you receive each month will remain the same, as long as your circumstances remain the same, and it will continue to be paid directly to your lender. Even though it is a loan it won't appear on your credit file.
When do I have to repay the loan?
Crucially, unlike a normal loan, you won't have to repay it except in the following specific circumstances:
- If you sell your home. Even then you'll only have to repay the loan if there's enough money left from the sale after paying off the mortgage. If not, it'll be written off, or you'll only have to repay what you can afford.
- If you transfer ownership – ie, if you change the registered owner of your home, or add someone as joint owner.
- If you die the money will be taken from your estate, but if you own the property jointly as a couple this will not be until your partner has also died.
I get SMI benefit – what do I have to do?
If you currently receive SMI benefit and haven't yet signed up for a loan, it's important you act now to avoid your payments being stopped. Here's what's happening and what you need to do:
- Check for your letter explaining the changes. You should have received a letter and leaflet from the Department for Work and Pensions (DWP) explaining what's happening, though a few haven't gone out yet. If you haven't got or can't find the letter, you can get one by calling 0800 731 0469 if you're over state pension age, or 0800 169 0310 if you're working age.
- Speak to Serco about your options. Serco is a company working on behalf of the DWP. It should call you after you receive your DWP letter so that an adviser can give you more details and talk through your options. If you missed the phone call, you can call Serco on 0800 046 8333 to book a time for another call. You can then consider your other options, and if you decide to go ahead with the loan, you'll be sent a loan agreement form.
- Check and sign the loan agreement form. Once the paperwork arrives, check it, sign it and send it off. You'll normally have about six weeks after receiving the loan offer to do this, though the exact deadline varies (see full info below).
If you don't respond initially or decide not to take an SMI loan, you can change your mind at any time. What's more, if you decline a loan then later change your mind you can receive payments backdated to 6 April 2018 if required.
If I do nothing, when will payments stop?
Here's where it gets tricky. Essentially, if you do nothing your payments will stop within weeks, so if you need an SMI loan you need to act fast. But the exact cut-off point varies:
- If you don't respond to the initial letter and then don't receive a loan offer, your SMI benefit will stop on Monday 7 May.
- If you do respond, are offered an SMI loan at any point up until Sunday 6 May but then don't respond within six weeks, your SMI benefit will stop six weeks after your loan offer date.
- If you do respond, are offered an SMI loan at any point up until 6 May and accept it within six weeks, your SMI benefit will be replaced with a loan four weeks after the DWP receives your completed loan agreement.
- If you've already accepted an SMI loan, your SMI benefit will be replaced with a loan on 6 April.
'Vulnerable' people have longer before payments are stopped
Although ALL recipients of SMI benefit will see it changed to a loan, those classed as 'vulnerable' – individuals who need someone to formally make financial decisions on their behalf, eg, due to dementia or a severe learning disability – won't see payments stopped as suddenly.
Vulnerable SMI claimants will continue to receive SMI benefit until they switch to a loan, or until the later of the following:
- 4 November 2018.
- If you potentially lack capacity, six weeks after the DWP confirms you lack capacity.
- If the DWP applies for a decision to appoint you a financial deputy, six weeks after the Court of Protection decides whether or not to appoint a deputy, or an application to appoint a deputy is withdrawn.
For more info and help, read our Mortgage Arrears guide, and see Citizens Advice, the Money Advice Service or Shelter.