by Mark Johnston
The recent coalition government spending cuts may well be set wreck the mortgage market. Tens of thousands of struggling households are set to loose support from the government in a bid to cut the deficit and sure up the UK economy.
Industry watches are concerned that this may well trip many poor and struggling house holds over the end and force them out of their house. Up to now the number of repossessions has been fairly low and well under the predicted numbers but this may be set to change following the announcements.
The changes that have been introduced by coalition government between the conservatives and lib dems will leave well over one hundred thousand households with a shortfall of up to 40% when the mortgage interest benefit is cut.
Those with an average mortgage of £150,000 will have to find an additional £300 per month which may be the final straw for some borrowers. After which, their fate is to sell up or face repossession.
The Support for Mortgage Interest (SMI) was set up to help households avoid repossession by paying some of the interest on their mortgage to avoid them being evicted out of their home. The benefit is only available to those who are on some sort of state benefit like income support or job seekers allowance. At the start of this year there were 227,000 house holds receiving the benefit most were young families and pensioners. Last year the scheme was extended to help more families by increasing the maximum mortgage that it covered from £100,000 to £200,000. At the same time the waiting time that homeowners can claim from was changed from 39 weeks to 13 weeks and the benefit was increased up to 6.08%. These changes mean that help was offered to many more families and home owners costing an estimated £1 billion to the tax payer.
Some insiders have slammed the benefit as unfair as many home owners get higher benefits although they are paying much less due to the decrease in interest rates. Because of this claimants are receiving money that covers their interest rate and also provides extra that they are using to pay off the capital on their mortgage. The some much coalition government decided to make some much needed changes to the way benefits are calculated to make the support fairer and less costly to the tax payer.
Around half of the households will loose the benefit but claimants are unsure of how the new system will work and whether they will be one of the 100,000 who will be effected. Struggling families fear that they will be left with no way of keeping their family home.
For someone with a typical £150,000 mortgage, a 40% shortfall will mean finding an extra £300 a month. That’s the nightmare facing mum-of-three Diane Jones, who says a big cut will plunge her family into crisis. Unsurprisingly none of the claimants seem to admit whether they are receiving more than they need and are instead complaining that the changes have been chaotic leaving many of them in the dark about their future.
Diane and husband Stuart (not their real names) have already fallen £13,000 behind with the mortgage on their three-bed house in Manchester. “If we can’t find a solution, we’ll have to walk away,” says Diane. “I’d be devastated because it’s our home. It’s where we’ve brought up our three sons.”
Yet while those on the breadline fear the future, even more people will continue getting more than they need to cover their home loan – at taxpayers’ expense.
The chaos has been made worse by many of those affected being left in the dark about the changes.
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