Support for Mortgage Interest - the changes under the radar

With the changes in buy-to-let tax relief and the potential rise, yet again, in interest rates dominating the economic headlines, you could be forgiven for missing a small but important change made by the government during the 2015 summer budget. It has not been shouted about, nor has it been explained particularly well but, within the next three years, some rather dramatic changes to the Support for Mortgage Interest (SMI) benefit are to be enacted. Oliver Adair of Mortgage Advice Bureau discusses the benefits of SMI, the changes that are to be made within the next couple of years and how they could, potentially, affect home-owners. What is Support for Mortgage Interest? SMI can assist home-owners with the costs of their mortgage payments, though it should be noted that the scheme will not pay off your mortgage for you. It will, however, contribute to paying off the mortgage interest. The government will make interest payments on the first £200,000 of your outstanding mortgage directly to your lender for the period of time that you cannot afford to. The amount that the government pays is based on its own specific interest rate known as the SMI Rate. This currently sits at 3.12 per cent but, with interest rates set to rise in 2016, this will increase alongside the Bank of England Bank Rate. Can anyone apply for SMI? To take advantage of the scheme, you need to be on some form of income-based benefit such as income support, Jobseeker’s Allowance (JSA), employment and support allowance or pension credit. Once these benefits stop, through you returning to work or working more hours, the government will stop making SMI payments. Importantly, whilst there are no caps or limits for other benefits, if you are claiming JSA and have applied for SMI, you should be aware that the government payments made to your lender will only last a period of two years. So, what changes have been made? After claiming SMI, the first payments are made 13 weeks after application. However, it was announced during the Summer Budget that, from April 2016, this first period will be dramatically increased to 39 weeks after the home-owner has applied. Particular notice should also be paid to the word “benefit” as, form April 2018, SMI will become a loan. Why is this important? Simply put – it is a loan. You will have to pay any money you get given back, plus interest (albeit at particularly low rates). It is still in its early stages and is not yet confirmed but, if made law, anyone claiming SMI will have to pay back any amount that the government pay into their mortgage when they return to work or when they sell their property. Seek advice… With these changes potentially having a large effect on home-owners, it is important to speak to a professional mortgage adviser who will be able to guide you through the next steps in making sure that you receive as much help as possible.