161,000 homeowners across the UK currently claim what is known as ‘Support For Mortgage Interest’ (SRI), a means tested benefit which those who are struggling financially can apply for to help ensure they don’t miss monthly mortgage repayments. In July, however, the rates will change due to an alteration to the rate used for calculations, potentially leaving thousands of homeowners unable to meet interest repayments.
Financial Assistance For Interest Payments
At this moment in time, those homeowners eligible to receive the benefit are able to apply for financial assistance with monthly payments of the interest on a mortgage of up to £200,000 based upon an interest rate of 3.63%. Next month, however, this drops to 3.12%. Whilst it might not seem like a large drop, a reduction of just over 0.5% can equate to hundreds of pounds over the course of a year.
Coming into effect on 6th July, an example reduction shown on a £100,000 mortgage taken out over 25 years would see a drop by £43 per month (from £303 to £260). To some, this means tested benefit ensures they don’t fall behind with mortgage interest repayments, however with the reduction even in the above example equating to more than £500 over a yearly period, it could well be the difference between a homeowner going through a period of temporary unemployment having to sell up or being able to remain the owner of their own home until they get back on their feet.
A Means Tested Benefit
SMI is a means tested benefit, available to those receiving income-based jobseekers allowance, employment and support allowance and pension credit and is aimed at covering the interest payments on a homeowners mortgage through difficult financial periods. SMI is not intended to cover repayments on the capital.
What is surprising is that this isn’t the first time in recent years that SMI has been cut, with a drop from 6.08% being seen back in 2010. At the time, this reduction was a significant decrease and it was reported that, as a result of it, many homeowners claiming the benefit were facing repossession.
A DWP Comment
A DWP spokeswoman has commented on the matter, stating, “Mortgage support is not designed to cover an individual’s entire mortgage interest payment, but instead offers a measure of support for some people to prevent repossessions.”
Search Mortgage Solution’s Comment
David Sharples, our Manchester based mortgage broker here at Search Mortgage Solutions commented on the announcement of the rate decrease, stating, “For those who may have experienced changed circumstances following the purchase of their own home some time ago, SMI is intended to help keep them in their own homes rather than being forced to sell up (or even worse have the home repossessed) and have to apply for either housing benefit or go into council housing. Whilst the rate is expected to fluctuate based upon the Bank of England base rate, such a drastic cut whilst that remains stable could force repossession for many, something which shouldn’t be happening. Whilst mortgage rates over a fixed term have dropped considerably in recent months, the average variable mortgage remains at 4.53%, somewhat higher than the maximum available from SMI.”