Support for Mortgage Interest scheme sees 40% rate cut
Homeowners who qualify for the Government’s Support for Mortgage Interest (SMI) scheme have seen a 40% cut in the rate at which the benefit is paid.
The scheme allows some borrowers in financial difficulties to defer part of their mortgage repayments until their circumstances have improved, and the SMI rate was frozen at a generous 6.08% in late 2008.
However, from the beginning of October, the rate is being set at the level of the Bank of England’s published Average Mortgage Rate, currently 3.63%.
According to the Council of Mortgage Lenders (CML): “The change means that fewer borrowers will receive payments covering their mortgage interest in full, and all households receiving the benefit will come under greater financial pressure.”
The CML is therefore urging the Government not to make any further cuts to the benefit in its forthcoming comprehensive spending review and, in particular, to maintain the 13-week qualifying period for payments.
CML director general Michael Coogan comments: “A combination of low interest rates and the concerted efforts of borrowers, lenders and the Government have brought about a reduction in arrears and possessions, despite the economic slowdown.”
He adds: “Paying benefit at a lower rate will put extra pressure on household finances, and any borrower anticipating payment problems should talk as soon as possible to their lender, who will treat them sympathetically and try to work out a solution with them.”