by Mark Johnston
Yesterdays budget made changes to support for home owners that are struggling to keep up to monthly mortgage payments. The Support for Mortgage Interest (SMI) scheme was set up to help homeowners in financial difficulties. The scheme gives borrowers breathing space to find new employment or recover income without having the risk of loosing their home through repossession. Lenders reduce the borrower’s monthly payments by deferring interest until a later date, usually an agreed date in the future when the borrowers circumstances have improved. The Government guarantees the lender against any potential loss if the borrower still fails to make payments.
Homeowners on income support, jobseekers allowance, pension credits or other means tested benefits can claim 100% of the interest under the scheme. Borrowers that are in difficulty need to wait 13 weeks after they loose their job before they can make a claim and can only claim for mortgages up to £200,000.
Yesterdays budget announcement made a change to the scheme which effectively reduced the monthly payment under the scheme. At present borrowers on the scheme receive 6.08% as the rate was frozen in late 2008. Since then the Bank of England base rate has reduced to record lows whilst the SMI rate has stayed the same.
George Osbourne, the Chancellor of the Exchequer in the new coalition Government brought the scheme in line with current interest rates by announcing that the SMI will be paid at the level of the Bank of England’s published average monthly rate which will come into effect in October 2010. Although the scheme is used by a number of borrowers, it still only provides assistance to homeowners where all borrower have lost their jobs.
A wider scheme is available to help borrowers who have lost some of their income or for joint mortgage holder where only one have lost their job. The HMS Scheme launched back in 2009 allows borrowers to pay just 30% of mortgage interest for up to two years. Only a handful on lenders have signed up to the scheme but lenders not providing the scheme have made offers to provide something similar.
A homeowner with a £200,000 mortgage and on a 5% interest only deal would be paying £833. the scheme would defer 70% of the interest for up to 2 years reducing the monthly payment form £833 to £583. The under payment of £14,000 over the 2 years would then be added onto the outstanding loan increasing the payment to £891 per month.
For the poorest and most vulnerable households that can no longer afford their mortgage repayments there are two other schemes. One allows homeowners to sell part of their home to reduce their repayments whilst the other allows the sale of the full house and the option to rent it back at a reduced rate. Again, this is only available to the most venerable members of the community such as the elderly, disabled and families with young children.
The last option is the repossession prevention fund which allows councils to make small loans of up to £5,000 to families at risk of loosing their homes. If you are unfortunate to find yourself in difficult with your mortgage visit direct.gov.uk for more information but speak to your mortgage provider and either the National Debtline (0808 8084000), Consumer Credit Counselling Service (0800 1381111) or Citizens Advice for help and advice.
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