Originally posted on 31 Dec 2013

Homeowners who ask for help on mortgage payments after losing employment could be forced to give up a stake in their property under new rumoured proposals from the Government, reported in Mail Online on 30 August, here.

Under the current system, unemployed homeowners can claim Support for Mortgage Interest (SMI) 13 weeks after signing up for Jobseeker’s Allowance and other income-related benefits.

turnerandhowardevictionThis support helps jobseekers keep up with interest on payments and in turn avoid a potential evicton after falling on hard times.

Data shows this benefit was paid to 239,000 people to the tune of £400million last year – it is an important lifeline for many. But according to a report in the Financial Times, the Government is considering new plans for the state to recoup some of this money when claimants sell their home or die.  The newspaper says a decision on the changes is likely to be taken ‘within months.’

The Department for Work and Pensions said the Government wanted to reform SMI so it would still provide a safety net for homeowners while remaining fair to taxpayers.

Apparently, a source told the FT: ‘In the longer term, we intend to transform SMI from a benefit into a loan.’

What Is SMI?

•  If you’re a homeowner getting certain income related benefits you might be able to get help towards interest payments on your mortgage or loans you’ve taken out for certain repairs and improvements to your home.

•  SMI is normally paid direct to your lender after a waiting period, which is 13 weeks after you’ve claimed benefit.

•  You can’t get help towards the amount you borrowed – only the interest, on loans up to £200,000.

•  You can find out more on the gov.uk website.

The article in Mail Online says that Ministers believe the changes will work as homeowners tend to have greater levels of personal wealth than those who do not own a property. However, it could prove unpopular with those who believe they already contribute enough to the welfare state through paying taxes when they are in employment and deserve help when it is needed.

The move may also cause fears that Ministers will cook up more ideas to access the value tied-up in people’s property to pay for other costs, such as social care.

Meanwhile, The Institute for Public Policy Research (IPPR) – a left-leaning think-tank – believes SMI has played a huge role in stopping a repeat of the large spike in repossessions that occurred during the recession of the early 1990s.

IPPR has previously said that much higher rates of income protection should be provided for working people who lose their job – this would then be repaid when they return to work.

Is this fair? Let me know what you think in the comments below.

Martin Pollins

Martin Pollins

Managing Director at Bizezia
Martin Pollins is a Chartered Accountant with wide experience in corporate finance and business management. He holds a number of directorships and has served on the boards of several companies, including those listed on the London Stock Exchange, AIM and OFEX.

He was a Council member of the Institute of Chartered Accountants in England and Wales from 1988 to 1996.

Martin Pollins ran his own firm based in Sussex and was the first Accountancy firm in the UK to advertise on television and Martin went on to create and launch the CharterGroup Partnership (the UK's first Accountancy network) and then LawGroup UK (one of the largest networks of lawyers in the country).

Martin started work on the Bizezia concept in 1996, developing the broad range of information resources and products over the past 18 years.
Martin Pollins
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