Lenders respond to proposals for support for mortgage interest
Published: 14 December 2011 | Author: Bernard Clarke
On behalf of lenders, we will be responding to the Department for Work and Pensions’ "call for evidence" on support for mortgage interest (SMI). We look forward to working with the government to improve the way this benefit is administered.
Lenders welcome the government’s commitment to continuing to provide SMI, and support its goal of helping home-owners "remain in their home and avoid repossession as far as possible."
We have already suggested – and therefore support in principle – one of the government’s key ideas, namely that SMI could be made available to home-owners over the longer term in exchange for a charge on the property, allowing some of the costs of state support to be recovered at a later date.
We agree with the principle that taxpayers should not be helping people acquire personal assets through any potential long-term rises in house prices. Detailed work would be needed, however, to strike the right balance and to ensure that home-owners – already treated less favourably than tenants in state housing support – are not further disadvantaged.
Lenders are also disappointed that there is no proposal to move away from paying SMI at a standard rate and instead pay the actual rate applying to individual mortgage holders, thereby removing the anomaly that creates "winners and losers" in the state benefit system.
Another major concern for lenders is the proposal to abandon mortgage interest direct, which ensures SMI is paid directly from the government to the lender. Instead, the government is proposing to pay benefit to the householder "so that claimants take responsibility for making their mortgage payments to their lenders in the same way that many of them did when they were at work."
We acknowledge the merits of encouraging personal responsibility but, in practice, any move away from mortgage interest direct must mean that some funds intended to meet mortgage costs are diverted to other spending by some claimants. In our view, it is difficult to justify this potential use of taxpayers’ funds.
The government is proposing a similar system for payments of housing benefit to tenants (instead of to their landlords) under the new universal credit. Lenders oppose this measure too, for the similar reason that some benefit payments will not be used for the purpose intended. On this issue, lenders have widespread support from housing organisations, landlords and consumer groups.