Building Societies Association
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DWP consult on Support for Mortgage Interest changes
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Contact: Paul Broadhead Date: 20 Dec 2011 |
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The Department for Work and Pensions (DWP) are consulting on changes to the Support for Mortgage Interest (SMI) scheme. As a fundamentally good scheme, SMI could be improved by making a few relatively minor changes.
The consultation seeks views on how SMI should be structured in the future, such as placing a charge on the property, amending the standard interest rate, the future of Mortgage Interest Direct, time periods and the capital limit.
The BSA has long advocated reviewing SMI and given current market challenges we'd welcome an extension of the criteria to cover all loans secured on a property - it is not uncommon for borrowers to also have second charge loans which do not currently qualify. We'd also like to see the SMI rate reflect the actual rate the borrower is paying on his or her mortgage, rather than a set standard rate.
Creative thinking about SMI as a loan rather than a benefit for those with short term payment difficulties and earning potential above the income related benefits threshold may also pay dividends. More generally we agree that it is right to examine whether SMI can be recouped via a charge secured on the recipient’s property as the public purse is not bottomless.
We question the need, however, to change the current process of direct payment of SMI to the lender, as this ensures in every case, SMI is being used for the purpose it is set out for. Direct payment to the borrower could, in some cases, result in the money being used for other purposes. This undermines SMI and could leave the borrower in a more vulnerable position with their mortgage. We acknowledge that consumers should be encouraged to have personal responsibility for their finances, however the current payment system works and we see no reason to change it.
