The government is facing calls to delay a new ‘second mortgage’ scheme, after reports they plan to axe “support for mortgage interest” (SMI) from April.
SMI helps financially constrained homeowners with their mortgage and has been around since 1948, but according to The Guardian, it’s set to be replaced by a controversial system where the government offers to loan people the money, which will be repaid later with interest.
However, new figures have revealed that just one in 20 affected households have signed up for the new, replacement scheme, prompting calls for the changeover to be delayed.
According to critics, the replacement of SMI will result in tens of thousands of people, many of whom are pensioners, being saddled with what essentially amounts to a second mortgage.
SMI was originally introduced after the Second World War as a short-term lifeline to those who had lost their job or fallen ill, to help them get back on their feet. Of the 124,000 people who currently claim SMI, 57,000 are pensioners.
A Freedom of Information request from mutual insurer Royal London to the Department of Work and Pensions (DWP) revealed the low sign up numbers.
Helen Morrissey of Royal London said: “It is truly shocking that many thousands of low-income families are yet to receive the information they need on the fact that their mortgage interest help could be switched off in just 10 weeks. If thousands of people fail to complete the process in time, they could face real hardship, and even potential repossession, if they can no longer afford to meet their mortgage interest bills.
“The DWP should pause the implementation of this policy until it is confident that everyone has had full information about the changes, and the time and support to make an informed decision.”
Information about the changes started to be sent out last July, but not all claimants have been contacted yet, according to the DWP.
Under the new system, the DWP will continue to make regular payments to the recipients’ mortgage lender, but interest will be added every month to the total owed. The longer the loan is in place, the more the recipient will have to pay back, although they don’t have to pay it back until the property is sold, or transferred to someone else.
Those who support the replacement scheme have argued it shouldn’t fall to the UK taxpayer to subsidise mortgage payments for an asset that can be passed on to children after their death.