Over 80,000 borrowers risk going into arrears because of a change to a Government benefit which supports people on low incomes to pay their mortgage.
On April 6th Support for Mortgage Interest (SMI), which has been providing help for people on benefits such Income Support, Pension Credit and Universal Credit since 1948, changed to a loan.
Previously the interest on their mortgage would have been paid as a benefit. Now recipients – many of whom are older or suffer from mental health problems – must apply for the loan or will face having to find alternative ways to fund the payment.
Last week UK Finance, the financial services trade body, raised concerns that despite hundreds of thousands being eligible, the ‘vast majority’ had not signed up for the loan.
And figures uncovered this week by Royal London revealed only 18,000 claimants from a caseload of 103,000 had opted to continue to receive SMI under the new loan arrangement.
Royal London, a mutual life, pensions and investments provider, has been calling on the Government to delay changes to SMI.
It said figures issued by the Department for Work and Pensions (DWP) revealed successful phone contact had only been made with 72,000 claimants.
The DWP pointed out that of people who have been contacted by telephone, 12,000 are undecided. Anyone can change their mind at a later date to take the loan which the DWP will backdate to 6 April 2018.
Letters had been sent and telephone contact attempted for a further 27,000 claimants, but no communication had been attempted in the case of 4,000.
Helen Morrissey, personal finance specialist at Royal London, told What Mortgage the figures were surprising given that a Government impact statement in 2015 said they only expected 5% of working age claimants and 8% of pension age claimants to choose not to continue to receive SMI when it converted to a loan.
“This is a major disparity,” said Morrissey, “and thought needs to be given as to why there is such a gap.”
She added: “We risk seeing people either being rushed into a loan arrangement that they don’t understand or potentially going into arrears with their mortgage.
“SMI is paid out to some of the most vulnerable people in society including the elderly and those suffering from learning disabilities and mental health issues – this is no way to treat them.”
UK Finance said lenders wanted to proactively help borrowers in receipt of Support for Mortgage Interest (SMI) to make sure they didn’t fall into arrears, and do what they can to help potentially vulnerable people move to the new regime.
Jackie Bennett, director of mortgages at UK Finance, said: “Many lenders have contacted customers they know to be in receipt of SMI, and we have encouraged all our members to do this.
“Lenders will continue to help borrowers resolve any financial difficulty if possible, so customers should not hesitate to contact their lender if they anticipate any payment problems.
“Lenders will also work with customers to see if there are other options available if they do not want to take out a loan.”
