Reduced protection for mortgage payments
What would happen if you were unable to pay your mortgage?
Changes to the government’s scheme supporting people unable to make their mortgage repayments – Support for Mortgage Interest or SMI – could have significant consequences for struggling home-owners. From 6 April 2018 SMI ceased to be a benefit payment and became a loan secured against the mortgaged property.
That SMI loan carries interest which is rolled up at a rate linked to government borrowing costs (currently 1.5%). It becomes repayable if the recipient moves home, dies or transfers the property in any way. SMI only helps to pay a claimant’s mortgage interest – no support is given for the capital repayments of the amount borrowed.
Before the changes SMI was a means-tested social security benefit. Under the new rules, SMI:
- Covers a maximum mortgage amount of £200,000, a figure set in 2009.
- Pays a ‘standard rate’ of interest, currently 2.61%, based on Bank of England average mortgage rate data. This means the interest on many mortgages will not be fully covered.
- Payments generally only begin after a waiting period of 39 weeks (13 weeks prior to April 2016).
The new form of SMI will leave recipients with a debt to pay, so it could be wise to arrange your own cover. You may not have such protection in place, particularly if your mortgage is more than two years old and started when the waiting period was thirteen weeks. If so it may be time to review your mortgage protection arrangements.
Your home may be repossessed if you do not keep up repayments on your mortgage or other loans secured on it. Think carefully before securing other debts against your home.
The information in this article does not constitute advice and should be used for informational purposes only. This content has been provided to Helm Godfrey by Taxbriefs.