BBC Money Box this morning talked about the new 'help' with mortgage interest payments which is changing to a loan from next April.

He stated that rents would still be covered even though in a roundabout way it would paying the mortgage of the owner of the property and that many rents are far more expensive than mortgage payments!

So what to do?

Set up the loan and end up owning less of your property or sell up, downsize if you can or rent?

People in need being punished again!

The government reasoning

7.2 The housing market has changed significantly since SMI was introduced in 1948. The upward trend in real house prices means that many owners have accrued significant equity in their homes. The result is that claimants who have capital assets in the form of their homes can still access financial assistance from the taxpayer in the form of a benefit, with no mechanism in place to recoup any of the funds provided to them. This means that in many cases taxpayers are effectively funding the accumulation of a potentially valuable capital asset.

I suspect the point Poppy007 is trying to make is that many rented properties have been purchased with a Buy To Let mortgage. The rents being paid by way of benefits are effectively funding the purchase of the landlord's assets.

For those home owners that end up having to claim SMI or its replacement are probably not in the financial position to sell and downsize. Even if they had sufficient savings to pay estate agent fees and the costs of moving, it would be highly unlikely that they would get a mortgage on a new property.

How many benefit claimants have mortgage interest paid anyway ? And it is not the mortage companies interest rate, but a standard DWP rate.

New benefit claimants since 1/4/16 have had to wait 9 months anyway for help with mortgage interest.

I should imagine that unemployment or low income over 9 months or more would cause significant mortgage repayment arrears to build up and people would face repossession.

I suspect the point Poppy007 is trying to make is that many rented properties have been purchased with a Buy To Let mortgage. The rents being paid by way of benefits are effectively funding the purchase of the landlord's assets.

 

A typical under researched facile statement

from the BBC, designed to stir the issue

Over 90% of btl mortgages from 38 lenders

prohibit landlords from letting to housing Benefit

claimants.

 

 

For those home owners that end up having to claim SMI or its replacement are probably not in the financial position to sell and downsize. Even if they had sufficient savings to pay

estate agent fees and the costs of moving, it would be highly unlikely that they would get a mortgage on a new property.

Why would they need to

By accepting the loan nothing changes

until they come to sell their property

or die. No repayments are needed till then

SMI was designed as a short term benefit

As UB points out it does nothing to

help those in urgent need

The whole concept changed as people were claiming for

many,many years

The UK taxpayer, many of whom can never

hope to buy a property or are struggling to

pay their own mortgage, are not in the

business of providing a£170 million

a year free gift to 124000 people

to subsidise the purchase of ever increasing

assets.

Why would they need to

By accepting the loan nothing changes

until they come to sell their property

or die. No repayments are needed till then

One issue with these SMI loans is that they attract interest at a rate linked to gilts. At the moment, that equates to around 1.6% per annum. If this is compounded over the lifetime ownership of the property, what was once a manageable debt could mushroom.

Whilst I agree up to a point with the sentiment of "why should the taxpayer subsidise the purchase of a home", I don't think the government should be profiting from providing a lifeline to those in need. It should also be noted that SMI benefits and the replacement SMI loans only pay the interest on the mortgage and not the capital repayments.

The alternative is to get rid of SMI support altogether and pay out a far greater sum in housing benefits to all the families that would be made homeless after defaulting on their mortgages.

The debt will of course increase over time

as does the home owners profits

curtesy of inflation

If claimants are currently managing

their capital repayments then they

have nothing to fear by accepting the loan

Nothing in thesechanges will increase

Mortgage Defaults

They will occur when interest rates normalise

Though if this group accept the loan they will

be partly protected

It is also worth pointing out that whilst you

continue to qualify for SMI you can accept

the loan at any time