Govt U-turn on mortgage interest relief hailed as victory for elderly and vulnerable

The Government’s decision to axe plans to withdraw mortgage interest relief on home income plans has been hailed as a ”victory for the elderly and vulnerable”.

In the Budget this year the Government announced it wanted to withdraw the relief for home income plan borrowers from April 2019, with a consultation set up that closed at the end of September.

At the time the announcement provoked fierce criticism from industry trade groups, who accused the Government of “moving the goalposts” for people well into their retirement.

Home income plans were a form of equity release popular in the 1990s, with the product’s acronym part of equity release trade body the Equity Release Council’s old name – the Safe Home Income Plans group.

A home income plan is where the borrower takes out a loan secured against their home and uses the sum released to buy an annuity. Part of the income pays the interest on the loan, usually at a fixed rate, and the remainder provides the borrower with an income for life. The loan is repaid on the happening of a ‘determinable event’, including death or moving into permanent long-term care.

There were just 15,000 loans to people that would qualify for this relief in February 2000 and HMRC estimated that fewer than 1,000 individuals are benefiting from the scheme, by around £400 a year.

But six out of the seven respondents to the consultation argued that the relief should maintained, arguing that the impact of withdrawal on a small number of elderly and vulnerable people outweighed the benefits gained from axing the relief.

The majority of responses stated that it was unnecessary to plan a date for withdrawal given the natural decline of the relief and proposed that the relief stay in place until it was no longer used.

The Government says: “In light of the responses and, in particular, concerns that the change could have a significant financial impact on those individuals affected, the Government has decided not to legislate to withdraw from April 2019 relief for interest on loans taken out to purchase life annuities by people aged 65 or over before 1999.”

The Equity Release Council’s chairman Nigel Waterson has welcomed the decision, with the consultation ensuring a retrospective change was not imposed.

He says: “We are delighted that an open and constructive consultation has led to a common sense decision – a decision which represents a victory for the elderly and vulnerable, and removes the threat of unnecessary stress and financial hardship for people of a significantly advanced age.

”We applaud the decision and welcome HMRC’s willingness to register these views through its consultation.”