Lenders need to beware as SMI becomes a loan today

Michael Lloyd

April 6, 2018

Lenders need to keep a close eye on their clients’ ability to keep up payments as the Support for Mortgage Interest (SMI) benefit has finished today, being replaced with a loan, Mark Piling, managing director of Spicehaart Corporate Sales has urged.

Recipients of SMI who are classed as ‘vulnerable’ won’t see payments stopped yet. They will continue to receive the benefit until they switch to a loan, or until the 4 November 2018.

Piling said that there are around 124,000 homeowners who are part of the scheme, and if they don’t sign a new loan agreement, payable on the sale of their home, they will lose their payments altogether.

He said: “Worryingly, the latest figures from the DWP reveal that, as of last week, 31,000 people who receive the SMI had not yet been ‘successfully contacted’ about their options, and of those who had been spoken to, just a quarter have said they will take on the new loan.

“There could, therefore, be thousands of homeowners who will struggle to make their mortgage repayments in the coming months, with many even going into arrears.

“With this in mind, lenders need to keep a really close eye on their clients’ ability to keep up their repayments and engage with third parties to look after every borrower’s best interests.”

The money will continue to be paid directly to the lender and even though it is a loan it won’t appear on credit files and the interest rate on the loan is very low but can change twice a year, on 1 January and 1 July; the current rate is 1.5%.

Ray Boulger, senior technician at John Charcol, said: “I think the key message is people currently getting the benefit need to take action to make sure they keep getting that benefit. Instead of it being money paid as a benefit, it’ll be paid as a loan.

“If people’s circumstances haven’t changed, they are still entitled to it. They just have to accept it’s a loan rather than a benefit.

“It’s clear the vast majority receiving it have had more than one contact from the government both by telephone and letter and a lot have appeared to ignore that contact.

“It’s important people respond to that contact because if they don’t, they’ll lose that benefit.”

He reassured that it’ll only need to be repaid when the property is sold and the government will meet people’s mortgage payments.

Boulger added: “Some people have chosen not to receive it as it’s a loan. They’ve taken the decision they can afford mortgage payments without benefits. Most who were on the benefit still need it because they don’t have enough income for the mortgage payments.

“It’s important as many as possible remain in their existing homes. Repossession creates problem for individuals and authorities. It’s in everybody’s interest to work together to keep everyone in their homes as possible.

“I think it’s perfectly reasonable people benefit from the value of their home. House prices will rise so when they sell their home they should pay the loan back to the government. They’ have a guarantee of tenure and no risk of being repossessed.”

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