So, the changes to Support for Mortgage Interest which George Osborne very quietly laid out in the summer budget of 2015 are coming to pass.
In April 2017 the waiting period for this benefit to kick in was extended from 13 weeks to 39. The bigger change however is that from April 2018, this benefit became a loan. There won’t be a credit check or any affordability testing but claimants will have to apply for the loan and compound interest will be charged.
Some of the questions we had around this loan have now been answered. So to sum up, homeowners of working age now face a nine month wait for help to pay the mortgage. Those claiming pension credits will not face that wait period. There are however some pretty significant limitations. The loan will only pay interest at a set rate, which may be more, or importantly, less than the rate of interest charged on the mortgage. As those applying for the loan are unlikely to have access to the best mortgage deals could that leave an uncomfortable gap for some? Additionally, any capital repayments fall outside of this loan. There’s also a maximum level of support, SMI will cover the interest on a mortgage up to £200,000 or £100,000 for those claiming pension credits. If there’s already a second mortgage, this won’t be covered at all. So the safety net has some holes in it. The loan becomes a charge against the home and the sum borrowed plus interest accrued becomes due for payment as soon as the debtor dies, sells the property or transfers ownership of it. Of course the individual can choose to clear the debt at any time if their circumstances improve.
As this is another charge on the property, I wonder about re-mortgaging. What are the implications? Will the mortgage still be affordable with the additional debt added? I don’t know the answers to all of these questions; I’m not a mortgage adviser. But if I was, I’d make sure I knew all the answers because I’m pretty sure they create a compelling argument for comprehensive protection cover.
Unfortunately, the impact of this quietly whispered change could be catastrophic for the mortgage client who didn’t buy enough of the right cover and it could be pretty uncomfortable for the adviser who didn’t convince the client to buy it. Because when it all goes wrong, the client is likely to be asking why this wasn’t highlighted as a potential risk to their home and the long-term affordability of it.
Some of the most passionate supporters of protection are advisers who sold a mortgage to a client but not the protection and subsequently dealt with the fall out, when the client became seriously ill, was injured or died prematurely. Handling a call from a grieving partner or a desperate client is something that sticks with them. Equally those of us who have watched people around us struggle with an illness while worrying about whether there will still be a home for the family at the end of it, become almost evangelical in our support of protection. So please excuse my passion. I firmly believe that with a backdrop of continuing welfare reforms, it’s more important than ever that people understand the need for protection. You’re ideally placed to do that.