Mortgage Interest : To Be A Loan Under UC !!!

[Chris From The Gulag]

A little snippett spotted in today's Guardian ... another ticking timebomb for many ?

From next April, help with mortgage interest through means-tested benefits (including UC) will be via a loan.

This will plunge claimants even further into debt as they take interest-bearing loans to pay the interest on their mortgages.

Loans to pay loans, with no pressure to repay that loan, which will become a constantly increasing charge on the property, reclaimed on sale or transfer by the DWP.

There is no transitional protection, and people are currently being contacted to be offered this. In the words of Ken Loach, “conscious cruelty”.

Confirmed by the DWP' own web site :

When SMI benefit ends

SMI benefit is ending on 5 April 2018, and will be replaced by a loan.

The loan offers the same support for paying your mortgage interest. However, you’ll need to repay the loan with interest when you sell or transfer ownership of your home.

You’ll get a letter by February 2018 telling you about the loan and other options available to you.

How many out there will be affected by this one ?

Now low interest rates ... what if they rise in the future ... say . back to 5 / 10%.

Any mortgage type calculator available online can calculate the real effect ... a mere £ 10,000 at 2% grows to £ 42,000+ over 25 years.

And , always assuming that house prices WILL continue to rise ?

One more to tack onto our Lord Kitch ... poor chap ... he'll be sinking under the weight of Issues before long ... into the same mire as us !

The implications are ... horrendous !

[Melly1]

Well they clearly haven't thought that one through, have they?! Not only will the poor claimants be even deeper in debt, they'll also have nothing left to pay for their care in old age ... and the tab will have to be picked up by a different government dept.

Melly1

[Chris From The Gulag]

A little surprising given no reaction and the few who have read this thread ... given that hundreds of thousands of carers / carees could fall victim to this " Little surprise " awaiting them next year ?

Double bubble for those with endowment mortgages IF the policy premiums are still ignored when calculting benefit entitlements ?

Going back to the early 1990s , one contact's policy premiums were higher that the full package of benefits awarded !

Thousands potentially to be lost if the policy was terminated early ... not withstanding the premiums already paid.

Exceptional but ... sadly true.

Classic ... rosy future without too much effort , nice job / house / company car / holidays and then ... a carer next day through an accident.

Perhaps the Forum gremlins are partly to blame ?

Who knows ... this one is just 6 months away ....

Any counter measures ?

Probably if one does an Internet search.

Early showing from the bookies ?

Some form of swopping interest for a share in the property , peppercorn type rent payment and life long tenancy / lease in exchange ... washed through a limited company , either UK or offshore ... ?

At first glance , no better off ... depends of what figures are input into the calculations , especially those from the originators.

Ironically , said calculations would almost be identical to those used to value sub prime mortages , and their ultimate market price ... then came 2008 ... !

Could be fun for the kids if they expect to inherit the property ... a faceless corporate entity residing at a po box in the Caribbean wanting their share ... first ?

Legitimate ?

Who knows ... until they are tested ... ?

As there is ( Potentially ) money to be made , one can guarantee that certain schemes will be " On offer " before long ?

And ... of course ... don't fall for that old one ... fees upfront ???

[Chris From The Gulag]

At last , the Money Mail ... part of the Daily Chuckle ... have caught up :

http://www.dailymail.co.uk/money/mortga ... s-hit.html

Take our loan, or lose your home...Vulnerable property owners face a (costly) offer they can’t refuse - as official safety net is snatched away.

Thousands of struggling homeowners, many elderly or in poor health, are in danger of losing their properties when a key financial safety net is axed next year.

Debt experts say some of the country’s most vulnerable borrowers are in for a ‘nasty shock’ when the Government scraps Support for Mortgage Interest benefit in April 2018.

This financial lifeline protects mortgage borrowers who have fallen on hard times from building up payment arrears and being repossessed by their lender.

t does this by paying a portion of the interest payments due on the home loan. Many of those who have received a bombshell letter are shocked at the prospect of losing a benefit worth on average £1,300 a year.

It is awarded to homeowners who are already in receipt of certain state benefits – such as Income Support or the Jobseeker’s Allowance.

Most at risk are the 60,000 borrowers who are pensioners and receive Pension Credit. They have few means of improving their incomes and making good the loss of the benefit.

The Department for Work and Pensions is writing to 124,000 people warning them they will need to make alternative arrangements to meet the cost of interest on their mortgage.

Instead of the benefit, it is offering claimants the option to take a ‘Support for Mortgage Interest Loan’ to cover interest payments.

This loan will be secured on their home and is repaid when the property is sold, ownership is transferred or the owner dies.

If the sale price falls short after the main mortgage is paid off, the loan is written off.

The loan is available on a maximum home loan of £200,000 (£100,000 for those on Pension Credit) with the money sent directly to the lender.

THE new loan alternative comes with an interest charge. This is forecast to be 1.7 per cent but will rise if the Bank of England base rate increases and can change twice a year.

Interest payments will be compounded, meaning interest builds up on interest causing the original debt to balloon the longer it remains in place.

Analysis by insurer Royal London for The Mail on Sunday suggests someone ‘receiving’ £20 a week in help at an interest rate of 1.7 per cent would run up a debt of nearly £5,500 over five years – a typical period for a pensioner to claim.

Consumer groups fear many of those receiving the benefit will not understand the implications of switching to a loan – and could see any equity in their homes quickly eradicated.

Jane Tully, a director at the Money Advice Trust, the charity that runs National Debtline, says the axing of the benefit could not be more ill-timed, with households already struggling to make ends meet against a backdrop of surging living costs and low wage growth.

She says: ‘These changes will make it harder for people to recover their finances in the long run.

‘We are also concerned that if people do not agree to the new loan and their benefit payments stop, this may result in mortgage arrears and the threat of losing their home.’

Homeowners need to decide before next April whether to opt for the ‘interest loan’ or meet the cost some other way. But it may prove a Hobson’s Choice, with few other options available.

As well as a letter, claimants will receive a phone call from services provider Serco on behalf of the Government. The caller will spell out how the new loan works as well as alternatives. Sally West of charity Age UK says: ‘Some people are telling us they are not going to take on the extra burden of a loan and intend to find money from somewhere else.

‘This could mean them cutting back on essentials such as not turning on the heating when winter bites.’

West believes those who agree to take the loan are storing up problems for the future.

She says: ‘Some people may be planning to downsize at a later date but with the new loan they could have little or no equity left when their main mortgage and the interest loan are repaid.’

West adds: ‘The guide sent to affected borrowers recommends those who are unsure to seek financial advice. But these are low income households and financial advice costs money.’

REMORTGAGE RESTRICTIONS

Sara Williams of consumer blog Debt Camel believes the new loan arrangement will make it more difficult for homeowners to remortgage to a better loan deal.

She says: ‘If you are only temporarily out of work – perhaps while children are young or until you find another job – then having this secured loan will reduce the equity in your home and make it harder to remortgage at a good rate in future.

‘If you are a pensioner with an interest-only loan, you may have been hoping your equity will build up over the next few years until your mortgage ends. This scheme will reduce the chance of that happening.’

In practice most people will not find a better option unless they have family or friends who are prepared to help. This is because the new loan will be at a lower interest rate than available from commercial lenders – and no repayments are required even if you start working again.

To accept the new arrangement a borrower (and partner if the house is jointly owned) needs to sign a loan agreement and a charge form – documentation that amounts to a bewildering 64 pages.

Williams says: ‘I am worried that people, especially pensioners, will be too scared to sign it. Those who are unsure should seek assistance from their local Citizens Advice which will look at their entire financial situation, including the benefits they receive and other debts they may have.’

Helen Morrissey of insurer Royal London, says: ‘I am shocked that people are being asked to make this decision without appropriate support. This could lead to them not taking up the loan offer for fear of accruing a large debt and then finding themselves struggling to meet the interest payments on their home loan.

‘There could also be a nasty shock in store for people inheriting a property from someone who then finds there is not only a mortgage outstanding but an interest loan as well.’

Gordon Andrews, financial planning expert at Old Mutual Wealth, believes the axing of the benefit ‘removes a critical safety net’.

He says: ‘There is no guarantee that property price rises will cover the extra debt burden for those who take the loan option. Indeed most forecasts suggest house prices are likely to fall in the near future.’

Andrews says one option for those still in work but worried about paying the mortgage if they lose their job is mortgage payment protection insurance.

He says: ‘This is likely to cover both your capital repayments and the mortgage interest. But find out whether the policy pays you directly, or your lender, as a payout from this type of policy could affect entitlement to some income-related benefits.’

The Department for Work and Pensions says the axing of Support for Mortgage Interest benefit will save taxpayers £170 million a year.

Happy Easter 2018 to all readers facing this issue ... from the DWP !!!

[Chris From The Gulag]

Major article on this issue from today's Guardian :


https://www.theguardian.com/money/2017/ ... eposession

Low-income households at risk as mortgage support benefit is axed.

Crucial welfare payment will be turned into a loan from 2018, affecting 124,000 individuals who rely on it.

Thousands of hard-up older people are being given a stark choice: sign up to a “second mortgage” with the government, or lose some of the financial help you receive.

In a little-noticed move, the government is axing a benefit that has been around since 1948 and has thrown a lifeline to many people on low incomes. “Support for mortgage interest” (SMI) helps financially constrained homeowners with their mortgage payments – some of them might otherwise be at risk of being repossessed. But from April 2018, SMI will no longer be paid as a free benefit. Instead, the government is offering to loan people the money, which will have to be repaid later with interest.

Critics say this means tens of thousands of people, many of them pensioners, will be saddled with what amounts to a new mortgage on top of their existing home loan. A 68-year-old woman who is still paying off her mortgage and receives SMI contacted Guardian Money to say she isn’t comfortable taking out a government loan, so she is going to reject the offer. But that means she will have to find the money to replace the benefit. “This is going to cause a lot of hardship for people,” she says.

However, others argue that it’s not the role of UK taxpayers, many of whom can’t afford to buy a home of their own, to subsidise people’s mortgage payments and enable them to acquire a potentially valuable asset they can pass on to their children after their death.

SMI helps homeowners on certain income-related benefits pay the interest on their mortgage and the Department for Work and Pensions normally sends the money straight to the mortgage lender. It was introduced after the second world war as a working-age benefit that would offer a short-term lifeline to people who had lost their job or become ill and were trying to get back on their feet.

However, almost 70 years later, many of those who receive it are of pension age and retired, and they are able to claim it indefinitely while their mortgage is outstanding. That is because pension credit is one of the qualifying benefits. The others include income support and income-based jobseeker’s allowance.

According to the government, there are about 124,000 people receiving SMI at a cost of £205m a year to the state. Almost half the recipients are of pension age and many have interest-only mortgages.

However, the government said the current setup was unsustainable, so in the summer 2015 budget it announced that from April 2018, SMI would no longer be paid as a benefit. Instead, it will be replaced by a state-backed loan, secured against the mortgaged property. The loans will offer the same support – the DWP will carry on making regular payments to the individual’s mortgage lender – but interest will be added every month to the total amount the person owes. The longer someone has the loan, the more interest they will need to pay back, so those who claim for several years could easily face bills running into thousands of pounds.

This isn’t the same as a normal loan: the mortgage holder does not have to pay it back until the house is eventually sold or transferred to someone else, though they might want to make voluntary repayments if they can afford to. In that sense, it’s like a government-sponsored version of equity release. If someone inherits the house, they will need to pay back the DWP from any available equity if the property is sold or someone else becomes the legal owner. If there isn’t enough equity, any amount that can’t be paid back will be written off.

So will the government make a profit from these loans? The DWP says no, as the interest rate people will pay will be “the rate the government borrows at” and based on official gilt rate forecasts. The latest prediction is for an interest rate of about 1.5% in 2018-19, rising to 2% in 2021-22. If you turn down the offer of the loan, SMI benefit payments will stop on 5 April 2018.

The 68-year-old who contacted us (and didn’t wish to be named) has a £67,000 mortgage. As she has decided she doesn’t want to the loan, she is going to have to find another £55 a month for her mortgage payments, “which is not a lot for some people, but is for others”, she says. “Where are people going to find that kind of money when they are only on a pension in the first place?”

Mutual insurer Royal London has criticised the way the change is being handled. “The government needs to make sure people have the help and advice they need to decide whether or not to take out a second mortgage to pay for this,” it says. “But instead, thousands of people are getting letters that miss crucial details such as the interest rate on the mortgage.”

However, the DWP says switching to loans will save it about £170m a year. It adds: “This change continues to provide a safety net to help people stay in their homes and avoid repossession. Over time, someone’s house is likely to increase in value, so it’s reasonable that anyone who has received financial help towards their mortgage should be asked to pay that back if there is available equity when the property is sold.”

Pick the bones out of that one ... regular readers would have had weeks to do so.

BEWARE ... vultures will descend offering all sorts of financial goodies to overcome this problem.

.... for a fee , of course !

Will they work ?

Some will have their day in court to find out !!!!!!!

[Chris From The Gulag]

More ... this time from this morning's edition of the Daily Chuckle :


http://www.dailymail.co.uk/money/mortga ... homes.html

Thousands more households in danger of losing their homes after switch to universal credit as critical safety net is removed, banks warn.

Thousands more British households will be in danger of losing their homes next year if they lose their job or become too ill to work, the UK's banking trade body has warned.

That is thanks to a double of whammy of the switch to universal credit and the scrapping of a safety net for mortgage interest payments from next April, UK Finance said.

The report, seen exclusively by Thisismoney.co.uk, argues that support for mortgage interest - paid by the government to homeowners struggling to keep up with their mortgage payments due to lost income - is a critical for struggling homeowners, especially the elderly.

By scrapping it at the same time as axing tax credits, the banking trade association says it's 'inevitable' that more of the families who fall behind on their mortgages will be evicted.

Support for mortgage interest is scheduled to be axed next April, after which an estimated 135,000 low-income homeowners who currently claim the free benefit will be forced to take a loan from the government instead - and pay interest on it.

Analysis done by insurer Royal London suggests that a Pension Credit recipient receiving the average weekly SMI payment of £20 could run up a debt of £5,552 if they claim SMI for five years - the typical claim duration for pensioners.

While the interest on the new SMI loan won't be payable until the borrower is back on their feet financially or the property is sold, there are already warning signs that the imminent loss of the benefit is spooking mortgage lenders.

Earlier this year This is Money was contacted by a 68-year old lady after her mortgage lender wrote to her threatening to evict her, citing as part of the issue the withdrawal of SMI.

According to the UK Finance report, Challenges for our Home Ownership Safety Net, without SMI there is little incentive for lenders not to evict struggling borrowers.

The report says: 'The system will be reliant upon individuals and their actions as well as on lender forbearance within the legal and regulatory safeguards that have been built into the operation of the mortgage market.

'For the most part, however, owner occupiers who are unable to negotiate a means of catching up with their payments are expected to sell and what government assistance they continue to receive is within the rental market.'

The report's authors - Peter Williams, a fellow at Cambridge University's department of land economy, Steve Wilcox, a professor at York University's centre for housing policy, and Christine Whitehead, professor of housing economics at the London School of Economics - also raised questions about the wisdom of the government's timing.

SMI is due to be scrapped at the same time as the controversial universal credit regime is rolled out across the UK, replacing the existing system of tax credits and potentially leaving many households worse-off.

The Bank of England base rate, meanwhile, has been at or below 0.5 per cent since March 2009 keeping the cost of mortgage payments down.

However, mortgage rates are starting to rise following last month's hike in the base rate from 0.25 per cent to 0.5 per cent.

Economists expect interest rates to keep going up next year meaning monthly mortgage payments are also likely to rise.

With the economic uncertainty that surrounds Brexit, any downturn could see a rise in redundancies and more households struggling to meet their mortgage payments.

'The protection offered by much reduced interest rates since 2008 may now be under threat, and the more rigorous rules for entry to the [mortgage] sector cannot remove inherent risks to mortgage borrowers resulting from unforeseen changes in individual circumstances,' says the report.

'It is now evident that by 2022 there will only be limited government financial support for home buyers in distress, and that will mainly be in the form of loans for those not in work.

'The work allowances for home buyers under the universal credit scheme will provide much more limited support to home buyers in part-time and low paid work than is available under the current tax credit and welfare schemes.

'Given where the UK is in the interest rate cycle and considering the tensions that exist within the housing market around affordability and the uncertainties surrounding Brexit, the question then is whether this is enough?'

The numbers of owners supported by SMI peaked at 235,000 in 2009/10 and has since fallen back to 136,000 in 2015/16.

However, it costs the government hundreds of millions of pounds each year.

SMI costs peaked at £563million in 2009/10 (the previous peak was £1billion in 1995) but has fallen in subsequent years to £280million in 2015/16.

'Despite all its limitations, SMI is still by the far the most significant government intervention providing direct support to homeowners in financial difficulties with their mortgage,' notes the report.

'Ultimately, although the safeguards that exist for borrowers via court procedures and the potential for renegotiation with their lender remain in place, there is little from the government side that might incentivise lenders to do more than follow due process.

'The limitations of support available to mortgage holders through the new loans for mortgage interest and in universal credit are such that inevitably these will result in a higher level of possessions than would otherwise be the case.

'The households affected will find themselves in the social or private rented sectors and the government will incur costs in the form of housing benefit.

'These potential costs to government should be a factor when considering the construction of a more effective home owner safety net.'

UNIVERSAL CREDIT: HOW WILL IT AFFECT HOMEOWNERS?

Take a couple with two children, with one person in full time work at the level of the minimum wage.

Under the tax credit regime the couple would be able to cover the costs of a £123,000 mortgage, and still have a residual income just above Income Support scale rate levels.

Under the UC regime they would only be able to cover the costs of a £79,000 mortgage to be left with the same level of disposable income.

The extent of mortgage cover would, however, reduce in both cases in the event of any rise in interest rates.

The differences between the tax credit and the UC regimes are even greater for lone parent households.

Be prepared !!!!

[Chris From The Gulag]

A few interesting comment on the SCOPE discussion board from posters affected by this change :


https://community.scope.org.uk/discussi ... est-ending


Judging by the responses , not one of the 6 million+ carer army affected ?

Or the couple of hundred reading this thread ?

[MrsAverage]

Seems like letters are only just hitting doormats and lots of people affected are only just realising the impact (or trying to understand it).
Watching with interest (no pun intended )

[Chris From The Gulag]

As the Guardian pointed out back in October , this change was virtually hidden in the small print of changes made to Government policy.

To my knowlege , and judging by reports already posted , hardly any of the media ... or politicians ... have picked this up.

A real nightmare for anyone so affected.

The " Fun " will really begin as the first " Scheme " to lessen the impact of this change hits the market.

There's blood in the water , and the sharks are on their way.

[Chris From The Gulag]

One factor not mentioned anywhere else takes me back some 27 years to my banking days.

If the DWP are now going to place charges ( Presumably equitable ones registered as such at the land registry ) , many mortgagees may then be technically in breach of the terms and conditions of the legal charge created by the existing mortgagor ... clause in mortgage document forbidding the creation of subsequent charges without their prior written consent.

Further complications could be that the existing charge on the property is also held as security for other borrowing ... or even a guarantee perhaps ... on a fluctuating account. Once notice of the DWP charge is received , it will have the efect of crystalising the existing borrowing at that moment in time. Great fun if a business account is involved and the weekly wages are due to be paid in 2 / 3 days time !

In addition , should the property owner want to move , that DWP charge would need to be paid off in full ... no details around as to whether said charge could be transferred to the new property.

Just a thought ... good luck to any reader with this problem in the future.