This short blog was written following a conversation with a colleague Ms C who was having the interest only paid by DWP following a period of unemployment. One day she was checking her statements and found that whilst the payments were still being made this had now become loan repayments. When she queried this, she was advised that she should have received a letter followed up by a phone call. Ms C is clear that neither of these occurred in her case.
SMI has been paid since the 1980s to people who are in receipt of benefits, almost half of them pensioners, in order to stop their homes being repossessed. It met the bank interest portion of a mortgage up to a cap of £200,000 or £100,000 for pensioners but it could not be put towards the capital value of a home.
SMI was originally paid as a free benefit that covered the cost of interest on mortgages for those claiming other benefits such as pensions credit, income support and universal credit, this help is now in the form of a loan.
If you are on Universal Credit you can also get a Support for Mortgage Interest Loan for help with interest payments on other loans that are secured on the home you occupy or are treated as occupying (whatever the purpose of the loan).
Before 6 April 2018, support for mortgage interest was paid in the form of a benefit. However, now it is paid as a loan. You have to repay the loan when you sell or transfer ownership of the property. You will also need to repay that money with interest. The interest added to the loan can go up or down, but the rate will not change more than twice a year. The current rate is 1.5%.
You will not be asked to sell your home in order to repay your SMI loan.
If there is not enough money from the sale of your home to repay the SMI loan in full, the balance of the loan will be written off and you will not have to repay it.
If you want to pay the loan back more quickly, you can also make voluntary repayments. The minimum voluntary repayment is £100 or the outstanding balance if it’s less than £100.
DWP stats show that of the 103,000 claimants, only 18,000 have opted to take up the new arrangement that came into force on 6 April. 42,000 claimants indicated that they wished to decline the loan, while 12,000 have not decided what to do and are at risk of losing the payments six weeks after successful phone contact was made. If you decide to decline the loan now but change your mind in future, the loan can be backdated so, in effect, there would be no break in payments.
Some scary facts from Moneywise.co.uk and the notification process
‘Initially, letters were sent to all claimants in July 2017 and were supposed to be followed up with phone calls to inform claimants, but DWP figures show that only 72,000 of them have been called successfully.
The DWP phoned 27,000 claimants but was unable to make contact with them, while it has made no phone contact at all with 4,000 other claimants
If you were receiving help in the form of benefit, please check your UC journal. Accepting the loan is voluntary; so, it is up to you whether you accept it or not.
Hope you find this information useful!