Q: The Chancellor announced changes to the Support for Mortgage Interest benefit in the summer Budget last year. Are these changes still coming in, if so when, and what has changed?
A: The summer 2015 Budget ushered in dramatic changes to Support for Mortgage Interest (SMI), the welfare benefit safety net for homeowners with mortgages in the UK. From April this year these new rules will come into force and will likely impact existing as well as future benefit claims.
Under the SMI scheme the government will pay interest payments to a lender for the first £200,000 of an outstanding mortgage of a homeowner that is eligible for SMI benefit. To be eligible clients would need to be on income support, jobseekers’ allowance, income-based employment and support allowance or pension credit. Currently the benefit kicks in from 13 weeks after the client makes a claim, but this waiting period will now be increased to 39 weeks from April 2016 and then they will only receive the benefit for up to two years.
In further changes planned to come into force by April 2018, SMI will cease to be a benefit and will be turned into a loan, with a second charge being taken on the client’s property and repayments payable to the government, with interest.
In September last year Aviva published research to suggest that less than half of homeowners have appropriate financial protection and according to the Building Societies Association, just over half of all borrowers believe they would be likely to fall behind on mortgage payments if and when the Bank of England pushes up rates. This means there will likely be a significant number of mortgage clients who could become reliant on SMI benefit if their physical or financial health fails.
Whatever your politics might be or your views on these changes being introduced, the fact remains that your mortgage clients need professional advice on mortgage payment protection and other financial protection now more than ever, before the worst happens.