Concern is growing within a number of struggling homeowners with the news that the Government is to cut the amount of money they can claim to subsidise their mortgage payments.
From July, the Government will use a reduced interest rate to calculate how much money they lend to lenders to help them balance their monthly fees. At present, homeowners that qualify for mortgage interest support (SMI) get help with monthly payments on a mortgage worth up to £200,000, based on an interest rate of 3.63%.
After a dip in high-street mortgage rates, the rate will be reduced to 3.12% from the 6th July. This means that on a £100,000 mortgage arranged for twenty-five years, the amount that can be claimed to assist with payments will drop from £302 to £260.
SMI is currently claimed by over 161,000 people. This is a means-tested benefit that can be received by people in receipt of income-based jobseekers allowance, employment and support allowance and pension credit. SMI is designed to support the borrower’s interest payments, but not their original capital.
Following an earlier rate-cut from 6.08% in 2010, the budget in the same year introduced a change. This statied that if the average mortgage rate recorded by the Bank of England was at least 0.5 percentage points different to the SMI rate, a change in interest recording would occur. This average fell in April of this year, prompting the cut.
Mortgage support rates to be cut in July
A spokeswoman for the Department of Work and Pensions said that, ‘it makes sense that the mortgage interest support we pay is tied to the Bank of England rate and that it should change as that rate changes. Mortgage support is not designed to cover an individual’s entire mortgage interest payment, but instead offers a measure of support for some people to prevent repossessions.’
Mortgage rates have been tumbling for new lenders, with the recent months bringing a surge of record low interest rate deals. The Bank of England claim however that the average standard variable mortgage rate is still above the SMI cap, which stands at 4.53%.