July 22 2017 Latest news:

Richard Lansdale at his home in Sprowston, who has just lost £150 per month because of government changes in the Support for Mortgage Interest scheme.

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High-profile coalition government plans to withdraw child benefit from higher rate taxpayers by 2013 caught the headlines in a big way this week. But another benefit cut, outlined in June’s emergency budget, has kicked in already – and the pinch is already being felt.

A 40pc cut in the rate at which borrowers receive income support to cover their mortgage payments has already started to cost people hundreds of pounds per month. The calculation for those receiving Support For Mortgage Interest (SMI) has changed from 6.08pc to the Bank of England’s average mortgage rate of 3.63pc.

The money has been available to people claiming certain benefits and goes towards mortgage interest payments and interest on loans taken out for repairs or improvements. The dry percentages translate into some pretty worrying cash sums for those hit.

One example is Richard Lansdale, who has lost £150 a month in benefit income. Not only will the loss of income prove difficult to cope with, but the fact there has been a cut at all has come as a shock to the 63-year-old. Mr Lansdale said he was only warned of the impending cut by letter a few days before the October 1 policy switch.

“I had absolutely no idea it was about to happen until it did,” said Mr Lansdale.

“We are £150 a month worse off, which is a lot of money for us. “We have worked out a way forward by talking to the bank and my wife will work more.

“But it will not be easy.”

The Council of Mortgage Lenders (CML) has now urged the government to resist further cuts to the benefit in its forthcoming comprehensive spending review and, in particular, to maintain the 13-week qualifying period for payments – much shorter than it used to be. The CML said it understood the pressures on government funding and accepted there was a case for reducing the rate. But the decision meant fewer borrowers would receive payments covering their mortgage interest in full, and all households receiving the benefit would come under greater financial pressure. However borrowers would continue to be treated sympathetically by lenders if they experienced payment problems, added the CML. CML director general Michael Coogan said: “A combination of low interest rates and the concerted efforts of borrowers, lenders and the government have brought about a reduction in arrears and possessions, despite the economic slowdown.

“Paying benefit at a lower rate will put extra pressure on household finances, and any borrower anticipating payment problems should talk as soon as possible to their lender, who will treat them sympathetically and try to work out a solution with them.

“Lender forbearance has played a crucial role in keeping arrears and repossessions in check, and this is reinforced by the certainty for lenders and borrowers of benefit payments, albeit at a reduced rate, within 13 weeks.

“But any move to lengthen the qualifying period – and in particular to return to a 39-week waiting time – will seriously undermine the efforts of lenders and borrowers to work together to try to ensure that going into arrears does not result in the home being repossessed.

“Continuing government support, including the funding of debt advice, is vital in helping keep people in their homes.”

Other research has revealed that the average payment under SMI was slightly more than £200 a month and that has now dropped by around £80. The cut in the interest paid should save more than £200m in a full year. Payment rates used to be kept at 1.58pc above the Bank of England base rate, but when that fell to 0.5pc, the previous government decided to keep the rate where it was at 6.08pc.


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