Chancellor George Osborne made the announcement in his Budget speech amid a raft of cuts to welfare payments, including a requirement to make those on higher incomes living in social housing pay rents at the market rate.
A spokeswoman for HM Treasury said from 1 April 2016, the waiting period for support for mortgage interest payments would be increased from 13 weeks to 39 weeks, before it is changed over to the loan structure in 2018. A higher capital limit of £200,000 will be available on the loan.
The spokeswoman added that with unemployment levels at around pre-recession levels as well as repossessions at their lowest level since 2006, the move to change support from a benefit to a loan made sense in terms of both “fairness” and “sustainability”.
CML director general Paul Smee, said the change, along with cuts to mortgage tax relief for landlords, was the most significant announcement for the mortgage market in the Budget.
“This is a radical change and we will need time to consider it and work through the practicalities and logistics. The systems and risk challenges for our members arising from such a change are potentially huge.
“Our members already go to significant lengths to support customers through temporary periods of difficulty, and will continue to do so. We will do our utmost, whatever the landscape of state provision, to keep in their homes customers whose problems are temporary and whose circumstances will allow them to get back on track over a reasonable timeframe. But this is a change that could have wide implications.”