The Home Owning Betrayal: Support for Mortgage Interest

After the home ownership revolution of the 1980s and 1990s, when millions of tenants were sold the dream of owning their own home, the UK Government is now rolling out the final chapter in that dream for many. The proposed changes to the Support for Mortgage Interest Scheme reads like an original Grimm Brothers fairy tale. Once you’ve read the contents of the new plan, it’s a bit hard to believe it’s appropriate for its intended audience.

Make no bones about it, the new dream is a cruel and barbaric one, which discriminates against the most vulnerable households, many of which have been at the blunt end of welfare reform for the last 8 years.

From the 6th April 2018, those households currently in receipt of what is known as Support for Mortgage Interest (SMI) are being presented with a choice, if they want to continue to have the support, they must accept it will be in the form of an interest-bearing, secured loan. Alternatively, they need to work out themselves how they are going to keep the roof over their head.

Support for Mortgage Interest (SMI)

The Support for Mortgage Interest Scheme was introduced in 1948 by the Clement Atlee Government. It extended housing cost assistance to home-owners like housing benefit provided support for tenants for periods of unemployment, illness, or eventual retirement.

In its current form, to claim the benefit you must be in receipt of a qualifying benefit and it is only payable after 39 weeks (which is intended to encourage homeowners to save or take out payment protection insurance – in the case of those who are in receipt of pension credit, they become entitled immediately). It also only pays the first 2.6% of any monthly interest payment for loans up to £200,000 (or £100,000 where someone is a pensioner). Where interest rates are higher, the homeowner must make up the shortfall and nothing is contributed to the capital repayment of the mortgage.

The new scheme, it is argued, is necessary, as the current £205 million costs are unsustainable. This is even though people can still have their mortgage interest paid if they sign up to it and the Government will not save any money immediately. Also, if you consider the amounts involved, the current costs are less than 5% of what is being spent throughout the UK in other housing benefits.

It has also been argued, it is only fair, as otherwise people and their families will benefit from rising equity in their property and this will be at the expense of the taxpayer (obviously not a concern for many Members of Parliament who buy properties then rent them to other MPs at the expense of the taxpayer).

However, the truth is no-one has ever had their mortgage or home loans paid off by SMI (although plenty of private landlords do get theirs paid via Local Housing Allowance). Also, a significant number of those involved are pensioners and many are already facing other problems such as they still only have interest only or partial repayment mortgages, which means even when their mortgages mature, they will still be left with a substantial shortfall (one in five UK mortgages are currently believed to be interest only or on a partial repayment basis).

In addition to this, there are now rising concerns that the effect of the new scheme will be many households will not sign up, fearful they will get into more debt and will end up in arrears.

A recent freedom of information request by mutual insurer Royal London, found of the 124,000 currently receiving support, only 6,850 homeowners had signed up. As a result, they have called for the UK Government to delay the roll out of the Scheme.

The real fear is the Government will scare off tens of thousands from applying for support and the price of this will be thousands going into arrears and facing repossession.

The Final Chapter in a Grimm Tale

The truth is this is a betrayal. The final chapter in the Grimm Brother fairy-tale of home ownership that successive conservative governments sold in the past.

For many the other chapters involved them being enticed into buying their council and housing association homes in the 1980s and 1990s, often inappropriately. Subsequent chapters involved them being sold interest only mortgages, with inappropriate endowment policies which were never going to adequately pay off the capital amounts owed at the end of the mortgage terms. Then there were the home development loans for new driveways, double-glazing and kitchens, all secured over their properties.

Then there were the mis-sold payment protection policies that people took out in the belief they would provide adequate insurance against unemployment and illness.

Finally, there was the over-arching theme of the story that if you worked hard, paid your taxes and national insurance contributions, then the welfare state would protect you later in life if misfortune fell upon you.

But it was all a fraud.

For many the dream has been a story of being mis-sold, poorly advised and over-indebted.

Just like the fraud the UK Government is telling us now that this new scheme is a way of saving UK taxpayers money. It won’t.

If people do lose their homes or feel they must sell them, then it’s likely we will all pay more when we are paying their housing benefits or local housing allowances.

If you are affected by the changes to the Support for Mortgage Interest Scheme, it is important you seek advice.

Contact the Scottish Financial Health Service or Citizen Advice Scotland.