Shelter backs CML's call for SMI to be paid at individual mortgage rates
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Shelter is supporting the Council of Mortgage Lenders’ call for the government to change the way in which it calculates support for mortgage interest payments.
SMI is paid by the government at a flat rate, which in most cases is likely to differ from the rate payable on a borrower’s mortgage.
At 3.63%, the current rate of payment of SMI is determined by the Bank of England’s average mortgage rate.
The CML says this results in many borrowers facing a shortfall because the benefit does not cover their interest payments in full, while others have their mortgages overpaid by the state.
In its News & Views newsletter last week, the CML says: “We believe it would be fairer - and potentially cheaper for the government - to pay the benefit to borrowers at the rate payable on their individual mortgages.”
The CML will set out these arguments in response to an informal call for evidence on SMI by the Department for Work and Pensions.
Campbell Robb, chief executive of Shelter, says that a change in the way the benefit is calculated could help people facing repossession.
He says: “SMI is a lifeline for thousands of struggling home owners. Payments made in line with the rate payable on the individual borrower’s mortgage would save the government money and ensure that more households avoid repossession.”
Shelter is also calling on the government to not change the 13-week waiting period before people qualify to start receiving SMI. The period was due to revert to 39 weeks in January 2012, but was extended to January 2013 in the Budget.
Research by the CML in March last year suggested the government could save around £26m a year if it paid the benefit at the rate payable on individual mortgages.
Also, if the government applied a cap of 1.5% above the current standard interest rate, it could save a further £13m, bringing the total annual saving to almost £40m.
In its response to the DWP the CML will also argue that the current limit of £200,000 for qualifying mortgages should be kept as it is.
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