SMI was introduced to help people who were, or are, struggling to make their mortgage payments. Without the help available through SMI, a claimant would either have to sell their home or have it repossessed if they could not keep up with mortgage payments.
However, SMI is not meant to be a long-term solution to homeownership, it is in place to provide help to those people who, through an unfortunate change in circumstances, are having short-term problems with their mortgage payments.
The Government is therefore asking experts and the wider public for their views. In particular, Ministers are keen for views on:
- Whether it is right for future new claimants of SMI to receive support indefinitely without the taxpayer having an opportunity to recoup some of those costs to help others in need; and,
- If after a fixed period of time, new claimants who want to continue receiving support should do so in exchange for a charge being levied on the property which would be paid back to the taxpayer upon its sale.
Lord Freud said:
"The current system of SMI payments does not encourage people to get on top of their own finances. It is also not sustainable. Even with today's low interest rates it costs Government £400million a year.
"We are committed to supporting homeowners to stay in their own homes when times are hard.
"But in the future this type of support must be fair and affordable so we are seeking views from experts and the wider public, including options for putting a charge on the homes of future claimants so when they sell up we can recoup some of the costs."
As a core principle, the Government would look at a charge based on the amount of support provided.
This approach would give future claimants continued security in their homes - knowing that they will receive help from the Government towards their mortgage costs.
CML reaction to new DWP consultation on Support for Mortgage Interest:
The Council of Mortgage Lenders welcomes the "call for evidence" and confirms it will be responding formally. The CML looks forward to working with the DWP as it seeks to improve the way in which SMI is administered.
The CML welcomes the confirmation that "the Government is committed to continue providing support for mortgage interest in future, to assist those owner-occupiers who qualify for this help to remain in their homes and avoid repossession as far as possible."
But it is disappointing that there is no proposal to move away from the standard rate for paying SMI to the far superior option of paying SMI at the actual rate payable by the individual mortgage holder, so eliminating the current "winners and losers" system.
The CML in principle supports (and, indeed, suggested) one of the DWP's ideas - that there is merit in introducing an option to receive SMI for the long term in return for a charge on the property through which the State could recoup some of the costs at a later date.
The CML agrees with the principle that "taxpayers should not in effect be helping people to acquire personal assets through any potential long-term rises in house prices", but believes that detailed work would be needed to ensure that the correct balance is achieved, especially to ensure that the disadvantage that home-owners already experience on housing support compared with tenants is not inadvertently exacerbated.
However, the CML is extremely concerned about the proposal to move away from the Mortgage Interest Direct scheme (under which the claimant's SMI is paid to their mortgage lender).
The Government is proposing to pay the benefit instead to the claimant "so that claimants take responsibility for making their mortgage payments to their lenders in the same way that many of them did when they were in work".
While the CML acknowledges the merits of encouraging personal responsibility, in practice any move away from Mortgage Interest Direct will inevitably mean that some of the funds designed to help meet mortgage costs will be diverted to other spending by some claimants.
It is difficult to see how this can be justified in terms of accountability to the taxpayer. A similar system is being introduced to pay housing benefit direct to tenants (instead of their landlords) under the new Universal Credit, which the CML and other housing and consumer groups also oppose as a result of similar concerns.
CML director general Paul Smee comments:
"It is good that the Government is in listening mode about Support for Mortgage Interest, as there is much that can be done to improve it. However, the principle of paying the benefit to claimants rather than lenders is dangerous in terms of potentially reducing its effectiveness in meeting its intended purpose."
