SMI was introduced to help people who were, or are, struggling to make their mortgage payments.
Lord Freud said: “The current system of SMI payments does not encourage people to get on top of their own finances. It is also not sustainable. Even with today’s low interest rates it costs the government £400m a year.
“In the future this type of support must be fair and affordable so we are seeking views from experts and the wider public, including options for putting a charge on the homes of future claimants so when they sell up we can recoup some of the costs.”
The government is also seeking advice on whether future claimants of SMI should receive support indefinitely without the taxpayer having an opportunity to get back some of those costs to help others in need.
CML director general Paul Smee, said: “It is good that the Government is in listening mode about Support for Mortgage Interest, as there is much that can be done to improve it. However, the principle of paying the benefit to claimants rather than lenders is dangerous in terms of potentially reducing its effectiveness in meeting its intended purpose.”