Government urged to postpone ‘second mortgage’ scheme

The government has been urged to stall controversial benefit changes which came into effect in the new tax year, amid claims they unfairly penalise the most vulnerable in society.

On 6 April, a “second mortgage” system replaced the Support for Mortgage Interest (SMI), which helped financially constrained homeowners with their mortgage payments. From this month, it will no longer be paid as a free benefit but, instead, the government is offering to loan people the money, which will have to be repaid later with interest.

The move attracted anger from a number of recipients of the benefit who said they had not been properly informed of the move. Now mutual insurer Royal London, which has been a consistent critic of the measure, is calling for the changes to be postponed to give those affected more time to absorb them.

In a letter to the 10 biggest mortgage lenders, Royal London policy director Steve Webb says many people who received the benefit are at risk of falling behind in their mortgage repayments.

The benefit cost the state £205m a year, and was credited with saving some people from losing their homes. Critics said it was not the role of the taxpayer to subsidise other people’s mortgages.

In the letter to lenders, shown to the Observer, Webb says there was concern over how people were told about the scheme and how many claimants were engaging. “Figures issued by the DWP showed that with just two weeks to go before the change was introduced, only 13,000 out of 90,000 SMI claimants had indicated they would accept the loan.

“The DWP had also only managed to successfully contact 54,000 by phone,” says the letter, which aims to gauge what measures lenders have in place to deal with those who fall behind with payments. “We have been contacted by several people affected by these changes. They outline a process where communications are not received, telephone calls not returned, and there is a lack of support to help explore their options.

“Claimants have been left distressed and confused about their situation with some believing their only option is to sell their home.

“We think this is an unacceptable way to treat some of the most vulnerable people in society and have called on government to delay the changes and offer more support to help claimants come to an informed decision.”

Under the new system, the DWP will continue to make the payments to the mortgage lender, but interest will be added every month to the total owed. The longer the loan is in place, the more the recipient will have to pay back. However, the mortgage holder does not have to do so until the property is sold, or transferred to someone else, although they can make voluntary repayments.

A spokesperson for the Department of Work and Pensions (DWP) says: “Over time, someone’s house is likely to increase in value, so it’s reasonable that anyone who has received financial help towards their mortgage should be asked to pay that back. People who sign up to the loan will continue to get help with their mortgage interest and it is only repayable if there is available equity when the property is sold.

“If people decide to decline the loan now, but change their mind in future, the loan can be backdated so, in effect, there would be no break in payments. We have already contacted everyone currently in receipt of SMI to explain the change but we are making sure people have time to review the documents, obtain advice and consider their options.”