Homeowners Not Receiving Regulated Advice

It has been revealed homeowners in receipt of Support for Mortgage Interest (SMI), who are being contacted about accepting Government loans that will replace the SMI benefit scheme in April, are being referred to advice agencies that cannot give them advice.

The revelation comes after Margaret Greenwood (MP) submitted a written question to the UK Government:

To ask the Secretary of State for Work and Pensions, which organisations Serco signposts Support for Mortgage Interest claimants to for advice on deciding whether to take out a loan from her Department to replace the benefit they are currently receiving; and whether such organisations are able to offer financial advice on taking out a loan.

Kit Malthouse, Parliamentary Under-Secretary (Department for Work and Pensions) responded:

All existing recipients of Support for Mortgage Interest will be contacted and given information about the changes. The information leaflet and Frequently Asked Questions booklet point claimants to organisations who can offer impartial, free support. These include Money Advice Service, Shelter and Citizens Advice Bureau. These organisations do not offer regulated financial advice, however they can support claimants to understand the options available to them.

For more information on the new loan scheme, see here

The Home Owning Betrayal: Support for Mortgage Interest

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.

Money Advice Update – April 2009

Money Advice Update – April 2009

First published in the April 2009 edition of SCOLAG.

The first quarter of this year, unsurprisingly, has been one of rumours and speculation for the money advice community.  Advisers have been eager to discover what changes the Scottish Government would introduce to help normal, hard working families with the credit crunch. 

As the picture begins to crystallise, the wait is almost over.


Fergus Ewing, the Minister for Community Safety, began by announcing on the 13th of January that he was launching a Debt Action Forum to ensure the Scottish Government was doing everything within its powers to assist debtor’s struggling with the current financial downturn. There would also be a special housing sub-group to look at the issue of what else the Government could do to prevent repossessions[1].

The Forum has now met four times and is due to submit its proposals by the end of May.

Already a number of proposals have been considered, such as voluntary protocols for collections agencies and contribution only trust deeds, which may exempt debtors’ homes, with the consent of creditors.

It has also been mooted the possibility of the AIB expanding its functions, to provide an online and telephone advice service[2]. This is the reoccurrence of an earlier debate that took place during the passing of Bankruptcy (Scotland) Act 1993.

Then it was dismissed as a possible conflict of interest and it is believed many of the arguments which were valid then, are still valid today. It has also been expressed that it will be a duplication of existing services, provided by the National Debtline. A service already funded by the Scottish Government.


The Accountant in Bankruptcy has also announced she will be taking over the full administration of the Debt Arrangement Scheme, including the management of cases. It is hoped this will free up the time of local Money Advisers, in order that they can devote more time to providing face to face advice to clients.

Other proposed changes to the Debt Arrangement Scheme, will be:[3]

  • Debtors being able to apply directly to the Scheme, through an online application process or an Approved Adviser
  • There no longer being a requirement for debtors to have two or more debts, allowing debtors with single debts to apply
  • The abolition of deemed consent, which allowed a creditor’s consent to be implied, when they fail to respond to notifications
  • The extending of the DAS Administrator’s power to apply a fair and reasonable test, in deciding if a payment programme should be approved, unless creditors’ with more than 50% of the total debt, actively express their consent.
  • A requirement for debtors to be able to make a minimum payment of £100 per month, or 1% of their total debt, whatever is the highest, towards their programmes and complete it within 10 years at most

It is hoped these changes will provide one point of contact for all debtors and creditors and increase the legitimacy of the scheme, as a result of it being operated by a Scottish Government agency.

It is also intended, despite the expansion of the gateway into the Scheme, debtors will still be encouraged to seek the advice of money advisers first. Although this will remove the requirement for Approved Money Advisers, it is likely money advice services will continue to play a pivotal role in the Scheme, particularly if the low Income, Low Asset Bankruptcies are an indication of the needs of debtors, where up to 90% of all applications are being made via advisers.

The other change, that debtors with single debts will be able to apply, will address some of the concerns that too much court time is taken up with Time to Pay Directions and Orders under the Debtors (Scotland) Act 1987. However, it is unlikely this provision will not be as successful as it could be, if debtors with single debts are still required to make a minimum payment of £100 per month. In the case of multiple debts, the minimum payment criteria is unlikely to be too great an obstacle, as the average payment in a Debt Payment Programme is already well in excess of this.

The removal of deemed consent will address the AIB’s concerns with lengthy repayment programmes being approved as a result of creditor’s failing to respond (over 90% of DPPs are currently approved as a result of deemed consent)[4].

It is, however, unlikely to do anything to address the lack of participation by creditors, and is likely only to encourage their continued lack of involvement.


The new statutory Action of Arrestment and Furthcoming appear set to come in to force from April 22nd 2009, as are the further changes to inhibitions (see SCOLAG 375).

Earning Arrestments

From the 6th of April, new Earning Arrestment Schedules will be implemented.

The minimum amounts protected from arrestment, will change  to:

  • Daily: exceeding £13.50
  • Weekly: exceeding £94
  • Monthly: exceeding  £410

There will now be a clear flat rate of arrestment of 20% from any amount above those figures, up to:

  • Daily:  £88
  • Weekly: £617
  • Monthly: £2,680

After which 50% of the earnings will be deducted.

Land Attachments and Adjudication for Debt

Alex Salmond’s announcement in August 2007, at the Citizen Advice Scotland conference, that he will not allow the new diligence of Land Attachment to be used against the principal home, continues to delay its implementation.

Gillian Thompson, the AIB, has also expressed concerns that there may need to be further changes to the BAD Act 2007, as the legislation may no longer hang together.  There is now likely to be a three month consultation on the future implementation of the changes in diligence, beginning in March 2009[5].

What is of more concern, however, is the continued delay in abolishing Adjudication of Debt, which should have been abolished with the implementation of Land Attachments.

The delay allows creditors to increasingly use this diligence, interest in which has been revived, with the number of adjudications being registered in 2007/2008 being in their hundreds, whereas a few years ago, the number registered could have been counted on one hand. 

This situation is clearly contrary to the policy of the current Government, that is unsecured creditors should not be able to attach the principal home of debtors.

Money and Residual Attachments

It is now intended the new diligence of Money Attachments, will be implemented in July 2009. This will allow Sheriff Officers to attach the money of debtors, when it is in their possession, but not when it is kept in a dwellinghouse.

Residual Attachments, which, it is expected, will be used to arrest intellectual property, will be implemented from autumn 2009 onwards.


The bank charges test case continues to work its way through the English legal system.

After the banks involved in the case decided to appeal the decision of the High Court, the Court of Appeal has now decided the charges can be subject to the fairness test contained in the Unfair Terms in Consumer Contract Regulations.

Although the Court refused the right to appeal, it is likely the banks will appeal directly to the House of Lords.

All cases, challenging the legality of the charges are likely to remain on hold, until the case is decided definitively.


Mortgage to Rent

The Scottish Government has now released details of their new Mortgage to Rent Scheme, which was launched in March 2009.

The Scheme aims to allow social landlords to take over the ownership of the homes of homeowners who are at risk of losing their property, either as a result of arrears with secured lenders or through insolvency and allow them to remain in possession as tenants.

The eligibility criteria for the Scheme will largely remain the same as before, although a list of average prices for homes throughout Scotland will be published and, other than in exceptional circumstances, it will not be possible to apply should the homeowners’ property be above the average value. The value of the property will be the value of the home, with all necessary repairs carried out to make it habitable.

A £6,000 grant will be available to the Social Landlord to carry out all necessary repairs.

If repairs, costing more than £6,000 are required, the application will only go through if the excess can be found from other sources.

Where there is equity, the debtor will be able to retain £8,000 of it, when under 60 years of age and £12,000m, when over 60 years of age. This source can be used to pay for repairs in excess of £6,000.

It will also not be possible to apply should the homeowner have more than 25% equity, unless the debtor is in a Trust Deed or has an interest only mortgage.

One important change will be that it will no longer be necessary for the home to be in imminent danger of being repossessed or for the lender to have initiated legal proceedings. Now, providing the owner has not made 3 months full payments and there are one month arrears, it will be possible to apply, providing all other UK home rescue schemes have first been exhausted.

Mortgage to Shared Equity

The Government Mortgage to Shared Equity Scheme will be similar to the Mortgage to Rent Scheme, in its’ intentions: that is to keep families in their homes. However, unlike the Mortgage to Rent Scheme, this entirely new remedy aims to allow debtors to retain some ownership of their property.

It will not be open to anyone with less than 25% equity and again debtors will need to exhaust all other UK home rescue remedies first. It will also not be available to any debtor who is insolvent, either as a result of signing a Trust Deed or applying for Sequestration.

Debtors applying for this Scheme will also need to have a capital and interest repayment mortgage.

It is intended a Government adviser will assess what level of share of the debtor’s home the Government will need to purchase, in order to reduce their monthly mortgage payments to an affordable level.

The debtor will not be required to pay rent to the Government for their share of the home. 

In order to apply for both Schemes, debtors will first need to seek advice from an agency that is a Citizen Advice Scotland or Money Advice Scotland member.

[1] http://www.aib.gov.uk/News/releases/2009/01/13215620

[2] http://www.aib.gov.uk/News/releases/2009/03/13163726

[3] http://www.aib.gov.uk/News/releases/2009/03/13114653

[4] http://www.aib.gov.uk/Resource/Doc/4/0000669.pdf

[5] Reaching for Reform, Credit in Scotland Supplement, Credit Today, issue March 2009