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dragging boot straps

Support For Mortgage Interest (Smi) Changes

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Hello everyone. I listened to the budget intently and was very impressed overall. In particular I noticed the changing of SMI from a benefit to a loan from 2018 and thought about the frequent occasions that SMI was complained about on here.......... and then no thread!

Your Standards really are slipping HPCers! SMI costs approx £500million a year and so will amount to a significant cut for those who should really sell their house as it is no longer commensurate with the living standards they can afford. I`m really starting to like the Conservatives and may even vote for them next time out!

Summary of SMI as it stands.....

If you qualify for Support for Mortgage Interest (SMI), you’ll get help paying the interest on up to £200,000 of your loan or mortgage. If you’re getting pension credit this figure is £100,000.

How SMI is paid

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

The standard interest rate used to calculate SMI is 3.12%.

What’s not included

SMI can’t help you pay:

  • the amount you borrowed - only the interest on your mortgage
  • anything towards insurance policies you have
  • missed mortgage payments (arrears)

Further Links

http://www.mortgagefinancegazette.com/arrears/budget-smi-to-become-a-loan-not-a-benefit/

Mentioned as far back as Mar 2014 : http://www.thisismoney.co.uk/money/mortgageshome/article-2569205/Is-DWP-planning-SMI.html

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There are so many props in place, we can't keep track of the latest tinkering to all of them...

FLS and HTB are the big beasts. No change to those I note. Unless there is an external economic event, those two have put a floor under house prices - I don't think there's enough motivated sellers out there for the house price indices to do much more than slowly grind back towards 2013 levels.

FreeTrader's analysis that the FLS money (and HTB) will still be supporting prices until 2020 has wiped away my post-budget glee.

Edited by rantnrave

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Your Standards really are slipping HPCers!

This has been discussed many times and was first mentioned on this forum within minutes of the budget announcement. Not a bad idea for it to have it's own thread, though.

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So a single 18 year old with a £200k IO mortgage gets paid to remain in their 3 bed roomed detached house in the north of England and every other 18 to 21 year old is entitled to nothing and everyone up to the age of 35 is gets paid to rent a room.

Seems hardly fair?

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So a single 18 year old with a £200k IO mortgage gets paid to remain in their 3 bed roomed detached house in the north of England and every other 18 to 21 year old is entitled to nothing and everyone up to the age of 35 is gets paid to rent a room.

Seems hardly fair?

That's because the single 18 year old with an IO mortgage is a savvy investor, primed to be part of a hard working family in the future. The other two are rent forever losers.

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So a single 18 year old with a £200k IO mortgage gets paid to remain in their 3 bed roomed detached house in the north of England and every other 18 to 21 year old is entitled to nothing and everyone up to the age of 35 is gets paid to rent a room.

Seems hardly fair?

A single 18 yo WAS getting paid to remain in their house but from 2018 won't. Back to being fair.

There are so many props in place, we can't keep track of the latest tinkering to all of them...

FLS and HTB are the big beasts. No change to those I note. Unless there is an external economic event, those two have put a floor under house prices - I don't think there's enough motivated sellers out there for the house price indices to do much more than slowly grind back towards 2013 levels.

FreeTrader's analysis that the FLS money (and HTB) will still be supporting prices until 2020 has wiped away my post-budget glee.

Every little helps no? I`m all for death by a thousand cuts!

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Will the conversion to a loan affect pensioners, who at the moment get SMI indefinitely? I know of two couples on GMP who currently get it. They effectively planned that the government* would pick up the interest bill and that rising house prices would mean they could leave their kids an inheritance.

Edit: *taxpayer

Edited by Solitaire

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We need to see how this works in practice.For instance is the "loan/SMI" charged against the property each month/year etc or does it simple stay a "loan" from the government.

Does the charge go after the original mortgage or before?

Whats to stop someone MEWing the full equity out?

What happens if there is no equity to charge against?

Once the person goes back into work what is the repayment of the loans terms?.

What happens if someone never works again and goes into retirement?.What is the income level where payments of the loan kick in?.

Is the interest rate the gilt rate on the loan?,or average mortgage rates?.

What if someone goes bankrupt?.Does the government "loan" go up in smoke as well?,or does it remain like a student loan?

Its a very good policy,but we need to see the small print on how it will work.

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Will the conversion to a loan affect pensioners, who at the moment get SMI indefinitely? I know of two couples on GMP who currently get it. They effectively planned that the government would pick up the interest bill and that rising house prices would mean they could leave their kids an inheritance.

Yes i think it applies to everyone.We need to see if they do it as a first or second charge on the property though.Thats they key.Is it simply a debt,or a debt charged and secured against the house.Interesting coming to re-mortgage when there is 0 equity left as the government own 20% etc.

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Well I guess they won't feel quite so smug now as they were quite proud of how they legitimately 'scammed' to system. Definitely something that needed changing, in that it encouraged people to be feckless with their future thinking that the state would provide after they'd spent as much as they could get their hands on whooping it up in Spain with no thought for their later years.

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Well I guess they won't feel quite so smug now as they were quite proud of how they legitimately 'scammed' to system. Definitely something that needed changing, in that it encouraged people to be feckless with their future thinking that the state would provide after they'd spent as much as they could get their hands on whooping it up in Spain with no thought for their later years.

I think that is why they are doing it.Huge numbers of people MEWing then going interest only.Just before retirement go on SMI.Interesting with the new pension changes as well.Now you could go on SMI for years,then take your pension,pay off house etc and owe nothing.Now they will want their money back + interest.Maybe even before the bank.We need to see how the loan works though.Is it supposed to be repaid as soon as you go above income support levels?

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The unfairness was that anyone with savings had to spend almost all their saving on rent before receiving help...when those with growing equity could claim their interest paid for by the state and keep their equity.......something has to change.

imo...hard earned taxed savings are worth more than tax free unearned equity.....so why should one have to pay for the privilege and the other make from the privilege?

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I think that is why they are doing it.Huge numbers of people MEWing then going interest only.Just before retirement go on SMI.Interesting with the new pension changes as well.Now you could go on SMI for years,then take your pension,pay off house etc and owe nothing.Now they will want their money back + interest.Maybe even before the bank.We need to see how the loan works though.Is it supposed to be repaid as soon as you go above income support levels?

Don't know if this is any help in clarifying

http://www.publications.parliament.uk/pa/bills/cbill/2015-2016/0051/cbill_2015-20160051_en_1.htm

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There are so many props in place, we can't keep track of the latest tinkering to all of them...

FLS and HTB are the big beasts. No change to those I note. Unless there is an external economic event, those two have put a floor under house prices - I don't think there's enough motivated sellers out there for the house price indices to do much more than slowly grind back towards 2013 levels.

FreeTrader's analysis that the FLS money (and HTB) will still be supporting prices until 2020 has wiped away my post-budget glee.

I wonder if this is so.

Don't forget that Osborne appears to be trying to play to a younger electorate. That younger electorate believes that HTB makes housing affordable. So if he withdrew this, he would lose votes.

Also bear in mind that for most of the last 25 years, a 5% deposit has been the norm and is not, in itself, the cause of the problem.

So if i was Osborne, i might just ask conclude that i'll leave HTB in place for the moment, since the landlord tax changes, SMI changes, housing benefit changes and tax credit changes will result in a rapid deflation in house prices anyway. Once that deflation has taken place the risk to the bank of lending 95% of a home's value also reduces (as does the financial impact of that risk actually occurring).

So Osborne can maintain this prop in place, knowing that the removal of the others will enable prices to fall. A political win-win.

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A single 18 yo WAS getting paid to remain in their house but from 2018 won't. Back to being fair.

Sadly, not quite. That person gets to carry on claiming the free money.

Only new claims after 2018 will get the loans :-(

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FreeTrader noted it on the main Budget thread.

At first I had some concern it would lead to another rush of buyers pushing and falling over themselves to pay silly upon silly prices (and in any HPC the Treasury to be blamed for buyer's own decisions of outbidding others by fortunes as is the norm).

Surprisingly the CML sees the SMI change as the most significant Budget announcement.

Commenting on today's Budget announcements, CML director general Paul Smee says:

"The most significant Budget announcement for the mortgage market is the fundamental change to Support for Mortgage Interest, which will change from a benefit to a loan in 2018.

"This is a radical change and we will need time to consider it and work through the practicalities and logistics. The systems and risk challenges for our members arising from such a change are potentially huge.

"Our members already go to significant lengths to support customers through temporary periods of difficulty, and will continue to do so. We will do our utmost, whatever the landscape of State provision, to keep in their homes customers whose problems are temporary and whose circumstances will allow them to get back on track over a reasonable timeframe. But this is a change that could have wide implications.

http://www.cml.org.uk/news/press-releases/cml-responds-to-budget-announcements/

And we knew the SMI rate was being cut to 3.12% a few weeks ago.

Mortgage benefit to be cut for 167,000 struggling households

About 167,000 homeowners, including 71,000 pensioners, who are struggling to pay their mortgage will see their mortgage benefit payments fall by a typical £756 a year from next month.

Under the Support for Mortgage Interest (SMI) scheme, the Government makes interest payments on the first £200,000 of outstanding mortgages for those who can't afford it. This is normally paid directly to the lender.

But from 6 July, the interest rate the Government pays will drop from 3.63% to 3.12%. It's been set at 3.63% since October 2010. http://www.moneysavingexpert.com/news/mortgages/2015/06/mortgage-benefit-payments-are-to-be-cut-for-167000-struggling-households

Edited by Venger

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Well, the props are being cut.

SMI was magiked out of the air by Brown/Mandelson to demonstrate that they were not economically incompetent and taking out a insanely large mortgage based on Labour's economic ability was not financial suicide ...

In the main. the budget was a tax raising one.

Removing mortgage IR relief from individual BTLers was an easy one.

SMI is a revenue reduction act.

Not sure how much its costing but I would not want to be signing off what is effectively a massive market prop/cash drain just to bial dummies out.

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I think that is why they are doing it.Huge numbers of people MEWing then going interest only.Just before retirement go on SMI.Interesting with the new pension changes as well.Now you could go on SMI for years,then take your pension,pay off house etc and owe nothing.Now they will want their money back + interest.Maybe even before the bank.We need to see how the loan works though.Is it supposed to be repaid as soon as you go above income support levels?

Repaid by sale of house on death?

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Repaid by sale of house on death?

Yes,but it also says "loans will be repaid once in work",so in affect there must be going to be something where you pay back so much a month once above certain earnings.

What happens if no equity though?.Lets say a £100k house has £95k mortgage.SMI goes up to £6k and rising,so house is -£1k and rising.Does that force a sale?.Is the SMI still forever?.Does it simply then keep being a charge so it swallows up future HPI etc.

One thing it will do is it will cut off a lot of MEWing down the road and equity release.SMI + interest rolling up over a good few years in a flat or falling housing market will see to it.

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This was raised at PMQs today by a furiously indignant Labour MP.

http://www.parliament.uk/business/publications/hansard/commons/todays-commons-debates/read/unknown/7/

Q11.[901832]

Redundant steelworkers such as those at Caparo Wire in Wrexham pay national insurance contributions and play by the rules. Why then are this Government limiting mortgage interest support for them in the future, and making them pay twice—once through national insurance and once through paying back the loan? Is that not the type of action that a responsible Government should not pursue, and is it not an example of compassionate Conservatism dying?

The Prime Minister:

The hon. Gentleman refers to a temporary recession measure on mortgage payments that was continued for five years. He gives me the opportunity to update the House, as I promised that I would last night, on what we are doing to help the steel industry, which I know is so important to his constituency. On energy costs, I can announce today that we will refund the energy-intensive industries with the full amount of the policy cost they face as soon as we get the state aid judgment from Brussels. I can confirm that that payment will be made immediately, and that it will be made throughout this Parliament, which is far more generous than the Opposition proposal.

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This was raised at PMQs today by a furiously indignant Labour MP.

What's DC on about? Temporary recession measure? Was continued for five years?

There were some changes in January 2009, but amounts to pay mortgage interest have been included in benefits since before 1988.

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What's DC on about? Temporary recession measure? Was continued for five years?

There were some changes in January 2009, but amounts to pay mortgage interest have been included in benefits since before 1988.

When it was introduced is not issue, it's that from that question, become a lifestyle choice.

So we are paying £500m every year to prop up some individuals. So I have no sympathy.

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What's DC on about? Temporary recession measure? Was continued for five years?

There were some changes in January 2009, but amounts to pay mortgage interest have been included in benefits since before 1988.

As SMI is just a label given to a component of payments made under a variety of schemes that have existed at various times (ESA/JSA, Income Support, Supplementary Benefit) over the last two decades he can label the 2009 changes as a "scheme" somewhat informally as there isn't really a formal language that everyone has agreed on and which he should be using.

It is amusing to think that some of the mortgages serviced by SMI will be in UKAR, so you'll have the government paying itself interest on loans that should never have been made to keep people in houses for which they paid prices they could never afford to pay, and this situation has been allowed to persist for five years (and counting).

Edited by Bland Unsight

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