Support for Mortgage Interest Changes

Ruth

No, the other alternative is to sell the property as soon as they get into financial difficulties, if they have equity.

My concern is far more for those who do not have equity.

And also, as a secondary issue, it is extremely inefficient use of public funds to encourage people to sell up, and go into rented accommodation on which they can then claim far more in HB than they can claim in SMI, assuming that their equity (less selling costs, less early repayment charges, less legal costs, less moving costs) is under £16,000 - which in very many cases it will be.

It's not joined up thinking.

The caps for SMI and HB should be the same, not the HB ones be (often) far higher.

Deepmistrust

andyandflo wrote: »

Why not?

But is it right for the government to pay SMI in order that 'any' equity is protected for the eventual use of the home owner by allowing that person to stay there at the taxpayers expense?

As I have said, a house is merely an asset, a home can be anywhere.
What is so wrong to move from being a home owner to renting, thousands do it!!

And this will save money for the governemnt - you will NOT be homeless, and what equity you do have can be used to pay the rent until you become eligible for housing benefit if needed.
If you are not claiming SMI you would be paying the mortgage so what is the difference.

If someone finds that they cannot manage to pay the mortgage, what is so wrong in selling and renting? This 'paper' equity is as you say paper, but that would change when it is sold to make a 'profit'.

Why are we so preoccupied with protecting the equity in our homes. It is a savings pot!!!

Finally OK if you can pay your mortgage carry on and good luck. I am fed up with moaners that want their cake and eat it when things go wrong!

It makes no odds as to whether the equity is protected or not.

What you are asking for, is for two homeowners in the same situation to be treated differently according to housing need.

Regardless of what happens to the equity the government role is NOT to force people out of their homes.

Get over it.

A house it not merely an asset. It's a persons home.
Clearly your knowledge on homelessness is lacking. Please stop posting your opinion as fact. In fact, in many cases it's not even (by the harshest definition of the word) an asset, when the associated liability (i.e. the mortgage) is greater than the value of the property.

And again, will you please stop saying "you" to me. I am not claiming SMI, I am not speaking about me. You have to be exceptionally hard of reading, to have not understood that by now.

Deepmistrust

Ruth wrote: »

No, the other alternative is to sell the property as soon as they get into financial difficulties, if they have equity.

My concern is far more for those who do not have equity.

And also, as a secondary issue, it is extremely inefficient use of public funds to encourage people to sell up, and go into rented accommodation on which they can then claim far more in HB than they can claim in SMI, assuming that their equity (less selling costs, less early repayment charges, less legal costs, less moving costs) is under £16,000 - which in very many cases it will be.

It's not joined up thinking.

The caps for SMI and HB should be the same, not the HB ones be (often) far higher.

Even with equity, unless a person voluntarily wants to do that, then a family or anyone, should not be forced to sell their property as an only other viable solution.

There are numerous solutions that would work, which also keep the family in the family home, which is better for all people in the long run.

Apart from that, I fully agree it's a waste of funds to effectively force a family into homelessness, then to pay even more in HB and other associated benefits.

andyandflo

Ruth wrote: »

As someone who works for a mortgage lender, I can see that this is the new government using a sledgehammer to crack a nut. And the people they are hurting are those most in need.

The old system was stupid. It made no sense to pay interest at a rate of 6.08% to a borrower who was paying a tracker rate of around 1% - or even less. Those people were benefit by having 5% of their capital balance repaid each year at no cost to themselves. It was complete madness.

But the reason that the rate was amended from a floating BBR+1.58% (which happened to be 6.08% when BBR was 4.5%) to being frozen at 6.08% was for very good reasons, most of which have already been expressed in this thread, but which I'll repeat to gather them together:

• Many people borrowed at fixed rates, prudently in order to protect against the risk of rate rises - as was recommended practice for those on limited incomes. Those fixed rates will typically have been 5% or more and often 6% or 7% depending when taken out.
• Many of the borrowers with a patchy employment history, and hence a patchy credit history, will only have been able to get mortgages from the dodgiest lenders, whose SVRs are way higher than average.
• Paying at a single rate only works if the spread of rates is relatively small. When BBR was 4.5%, most people were paying around 4.5% to 9% (say) with the vast bulk below 6.08% or not much above it. Now, the range has moved to 0.5% to 10%+ - because the non-mainstream lenders have increased their rates, and in many cases exited the market, whilst the mainstream lenders' average is distorted by the lucky few paying tracker rates around 1% and the lucky many paying SVR of 2.50% at Nationwide or LTSB Group.

The correct answer, in terms of equity, was to pay the ACTUAL rate payable by the customer, with a cap of 6.08%. That would have meant that in no case would any more money be paid than at present, and in at least half the cases there would be a substantial saving.

There would, as others have pointed out, be an increase in admin as a result. But DWP already collect the data on the actual rate payable from lenders - they simply don't use it!

And there's no reason why they shouldn't pay at a standard rate for a period of (say) 6 months or 1 year at a time, and then collect any under/overpayment from the lender. It's not like the lenders are going to be able to run off with the money, any more than they are likely to fail to pay over the tax they deduct from savings accounts.

The lenders can work out the amount of the underpayment which will arise, and get the borrower to pay it up front. They already do this for those whose rate is over 6.08%.


All in all, I'm pretty disappointed with this action by the government, because it involves lazy thinking and not caring about the consequences.


Re dmg24's point, the 3.76% rate is the actual weighted average rate payable by all mortgage customers, across the entire UK banking (and other lenders) market.

It doesn't relate to NEW lending. It relates to the existing mortgage book, which is why it is so distorted by existing lifetime trackers and the SVRs I refer to above, none of which is available to new borrowers.

Over time, the average will - very gradually - increase, even if BBR stays where it is, and that's what has happened over the past 9 months or so. But there won't be a significant increase until BBR increases as it's the trackers - and the SVRs which are effectively trackers - which are keeping the average down.


Speaking about the lender I work for, lots of our borrowers on benefits are paying a fixed rate above 7% which they took out when rates were relatively high. So they are going to have huge shortfalls. We will probably start writing to them next month (along with all the other customers currently receiving SMI) to tell them about the impact - and to recommend that they look strongly into taking independent advice about the options, including selling their property if they have any equity.

Regarding some of the earlier comments in the thread, this is all very well except for the fact that house prices have fallen, and many of these borrowers will not be able to sell up and clear their debt. Not to mention that if they are on fixed rates, they will be subject to early repayment charges, with us or any other lender.

So, they'll have a great choice come October:

As someone who works for a mortgage lender, I can see that this is the new government using a sledgehammer to crack a nut. And the people they are hurting are those most in need.

The old system was stupid. It made no sense to pay interest at a rate of 6.08% to a borrower who was paying a tracker rate of around 1% - or even less. Those people were benefit by having 5% of their capital balance repaid each year at no cost to themselves. It was complete madness.

But the reason that the rate was amended from a floating BBR+1.58% (which happened to be 6.08% when BBR was 4.5%) to being frozen at 6.08% was for very good reasons, most of which have already been expressed in this thread, but which I'll repeat to gather them all together:

• stay in the house and hope that they get a job/stop being ill/whatever; build up arrears at around 4% of the balance of their mortgage or nearly £350 a month on a £100k balance; probably get repossessed six months down the line and lose lots of money; or
• sell the property straight away, maybe realising an early repayment charge of £3k on £100k, incurring selling costs of maybe £1k or more, incurring negative equity sale shortfall of maybe £5k or more.
  
  And then they'll move into rented accommodation, and have their rent of up to £400 a week paid in housing benefit - over £1,700 per month - for a 4 bedroom house. Compared to the current £507 a month in SMI per £100k of mortgage.

How on earth is that going to save the government money overall?

I agree entirely and it seems that my posts have not been very clear. It is so wrong that people have had their capital debt reduced like this.

In fact the rental market round here for a 4 bed is £600. The government would not save anything if someone sold and rented in your example - it would cost them approx £93 pm. However, if someone sold because they found the mortgage difficult AND had equity, the government would save because they homeowner would have to use his equity to pay the rent before he could claim any benefits - Housing Benefit.

My argument is also that homeowners are bleating because they may not in the future have enough SMI to pay the mortgage interest which has been used in the past to 'ring fence' their equity and have to sell and use it to pay rent or clear any outstanding mortgage debts/charges.

Surely it is better to have peace of mind and no stress if you have no debt or debt that is manageable out of their OWN resources?

Deepmistrust

andyandflo wrote: »

I agree entirely and it seems that my posts have not been very clear. It is so wrong that people have had their capital debt reduced like this.

In fact the rental market round here for a 4 bed is £600. The government would not save anything if someone sold and rented in your example - it would cost them approx £93 pm. However, if someone sold because they found the mortgage difficult AND had equity, the government would save because they homeowner would have to use his equity to pay the rent before he could claim any benefits - Housing Benefit.

My argument is also that homeowners are bleating because they may not in the future have enough SMI to pay the mortgage interest which has been used in the past to 'ring fence' their equity and have to sell and use it to pay rent or clear any outstanding mortgage debts/charges.

Surely it is better to have peace of mind and no stress if you have no debt or debt that is manageable out of their OWN resources?

It seems that you are less concerned with the cost overall to the taxpayer, in preference for a desperate desire for not one single homeowner with a penny of equity in their homes to hang onto it, whilst being eligible for assistance.
Prefering to force families out of their homes, than looking at cheaper alternatives that enable them also to remain in their homes.

way to treat a newly unemployed home-owner. Tell them to sell their house too.

andyandflo

Deepmistrust wrote: »

It seems that you are less concerned with the cost overall to the taxpayer, in preference for a desperate desire for not one single homeowner with a penny of equity in their homes to hang onto it, whilst being eligible for assistance.
Prefering to force families out of their homes, than looking at cheaper alternatives that enable them also to remain in their homes.

way to treat a newly unemployed home-owner. Tell them to sell their house too.

Yes why not if they can't afford the payments without my money that I pay in tax to help them!

No they can get full housing benefit as long as they have no more than £6000 in savings ( under 60 rate).

Cheaper? It would be if those with savings/equity over £6000 used it to pay the rent and not claim benefit at all!!

One final point before I go to bed. I would suggest that the council start a massive housing programme. That way anybody having to rent, would do so in a council owned property, which would cost the Government/Council NIL!!!

The cost of building these homes is already in place with the local authorities. Money that was raised over the years after selling off council property under the right to buy scheme. They have never been able to touch it - now is the time!!!

OK maybe in time only the 'wealthier' amongst us will own property whilst the rest rent. This so called 'expectation' of being able to own your own property can only be said for those that can without difficulty, pay for it. Why are we all expecting to be 'property owners' that some expect the government to subsidise?

Look to the continent - how many actually own their own property in France?

Kirri

Deepmistrust wrote: »

It seems that you are less concerned with the cost overall to the taxpayer, in preference for a desperate desire for not one single homeowner with a penny of equity in their homes to hang onto it, whilst being eligible for assistance.
Prefering to force families out of their homes, than looking at cheaper alternatives that enable them also to remain in their homes.

way to treat a newly unemployed home-owner. Tell them to sell their house too.

He's been ignoring you, me and Ruth pointing out the consequences! A poster obsessed with people's perceived equity..

andyandflo

And yes finally, if I needed to rely on benefits to pay my mortgage, I would sell, what is the point of hanging on to it - I'm not greedy!!!
Both my daughters and their partners used to own their own houses on mortgage, but both now rent. They realised that to live from month to month with only the interest being paid was not getting them anywhere. They both cut their losses made enough to repay all of the mortgage and early settlement charges and are now free of debt paying less in rent for a 1 bed flat instead of a 3 bed house which they never needed. They say it was the best advice that I could have given them. They now don't claim any benefit because they can pay their rent out of their own resources.
AND THAT IS SAVING THE GOVERNMENT MONEY!!!!!!!!

Ruth

There are even more flaws in the SMI system than I've alluded to.

If someone has equity in their property - even if it's 99% - then they still get SMI if they have no savings.

But if they have savings, they won't get SMI.

The system positively discourages the accumulation of savings to enable you to pay your own mortgage.

And I actually agree with part of what andyandflo says. It is morally wrong for people who have equity in their homes to have their financial asset defended for them at taxpayers' expense. It would be far more appropriate for any SMI payment to become a second charge on the borrower's property, so that if they subsequently sell up and realise a profit, the taxpayer gets their fair share.

That doesn't lead to any financial hardship for the SMI claimant. It simply reduces the long-term cost of SMI to a very small amount, because SMI is lent, not given.

Far more sensible than what is going to happen in October.

andyandflo

Ruth wrote: »

But paying SMI is cheaper than paying housing benefit.

An owned property involves paying a residential rate of interest, and no profit for a landlord.

A rented property involves paying a BTL rate of interest, and the landlord making a profit.

Generally rent > mortgage interest, particularly mortgage interest capped at 6.08% which is lower than most BTL mortgage rates.

Please read the other posts!!

It would be cheaper if any equity they have is used to pay the rent.

And you have to question if you really need to live in a property with 3 beds if a 2 bed rented flat would suffice.