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Government consults on mortgage support shake-up

Wednesday, 7 December 2011 9:25 AM

Unemployed home owners face a shake-up in welfare payments under a consultation launched by the Department for Work and Pensions (DWP).

Welfare reform minister Lord Freud said the aim was to make the support for mortgage interest (SMI) scheme "fair and affordable" for taxpayers. It currently costs £400 million a year.

SMI helps home owners who are struggling to meet their mortgage payments to avoid arrears and repossession.

The main reform option being considered is levying a charge on property of new claimants based on the amount of support provided. This would then be repayable when the home is sold.

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 £400 million 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."

The Council of Mortgage Lenders (CML) said it supported the idea of SMI for the long term in return for a charge on the property.

However, it said it was disappointed that there was no plan to move away from paying SMI at a standard rate regardless of the actual mortgage rate paid by the borrower. And it said it was "extremely concerned" about plans to pay the benefit direct to owners rather than to the lender.

CML director general Paul Smee said: "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."

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