Summer Budget 2015 : SMI changes, support for mortgage interest.

tgroom57

I'm starting this thread as this needs to be discussed. I feel it is a ticking time bomb.

Owing to my circumstances I will not be affected, but am so close to being affected that I can see the precipice.
I am currently claiming JSA, have (until recently) SMI paid of £110 pcm which is considerably less than the £495 rent charged by social housing for my next door neighbour.

Fast forward to 2018 and the proposed new rules (yet to become law).
1. If govt is willing to pay rent as part of a benefit package, why not an equivalent amount of mortgage interest?
2. Does govt really want to pay £495 rent when they could be paying less than that in SMI ?

Their end-game doesn't add up either. If the final loan exceeds equity, the govt will take nothing and just write off the entire loan. (If there is insufficient equity, the entire SMI loan balance would be written off. ) Suppose equity =£30,000 loan =£31,000 the govt take nothing- leaving the estate with £30,000 from sale of house. But loan =£29,999 and the estate gets £1.

I would have expected end game to read if the final loan exceeds equity then govt will write off the balance after claiming the full equity.

But my main irk is with the clear disparity in treating rent as a grant and SMI as a loan, since they are both a housing cost.

zagfles

It's basically treating equity as savings. You wouldn't get any HB/LHA to pay your rent if you has £30,000 of savings in the bank, but you do get SMI and other means tested benefits such as JSA/IB & IS if you have £30,000 of equity in your house.

bloolagoon

The argument I guess is that the asset realises value with inflation and that they have the alternative option of selling and renting. Of course this means any previous equity will be used to live off so this may not be attractive. It's also limited for 2 years for those on JSA so it's a small price to pay to keep your home.

Long term claimants I suspect it would be difficult to keep a mortgage. Often you are on higher rates and the necessary repairs may prove too much.

I agree it's not value for money but I suspect there is a moral aspect to this with many unable to get their foot on the property ladder who are tax payers.
I don't have an issue with the charge aspect but do think the new waiting time is excessive. That's going to be very hard going as 13 weeks was hard enough.

midnight_express

How long is the new waiting period ? When do the new rules start ?

rogerblack

zagfles wrote: »

It's basically treating equity as savings. You wouldn't get any HB/LHA to pay your rent if you has £30,000 of savings in the bank, but you do get SMI and other means tested benefits such as JSA/IB & IS if you have £30,000 of equity in your house.

But of course, it's just fine to buy the house for your landlord with HB, as he is considerably richer than you, and clearly needs the money.

The replaced SMI now means if you fall long-term ill, after paying off 90% of your home, you will lose your home in fairly short order, as the interest rate is going to be quite high.
Even if the price of your mortgage may be way lower than rent, causing savings to the exchequer.

The rational solution is to crash the housing market by several times, to get houses back to being houses at a static price, not an ever-appreciating asset.

dodger1

Maybe this is the way to go now, payments look reasonable,

http://www.moneysavingexpert.com/mortgages/payment-protection-insurance

Long-term sickness, an accident which prevents you from working or redundancy can hit you hard in the pocket and put your home at risk. Mortgage payment protection insurance covers your monthly repayments if you can no longer make them.

Typical MPPI policies will cover mortgage payments for up to two years and will pay up to £2,000 a month or around 65% of your monthly income (whichever is lower), providing protection when you need it most.

zagfles

rogerblack wrote: »

But of course, it's just fine to buy the house for your landlord with HB, as he is considerably richer than you, and clearly needs the money.

That's just a trite soundbite. Perhaps the guy who runs the corner shop shouldn't make money from benefit claimants spending money in his shop? How about Tesco shareholders? They're likely to be considerably richer than benefit claimants who shop there. Maybe NHS dentists shouldn't get paid by the state for filling benefit claimants' teeth? They're likely to be £100k or close, much richer than any benefit claimant.

What do you expect to happen, the majority of landlords already refuse to rent to those on benefits, do you want that proportion to increase even more?

The replaced SMI now means if you fall long-term ill, after paying off 90% of your home, you will lose your home in fairly short order, as the interest rate is going to be quite high.

Why, exactly? The budget document says "Loans will be repaid upon sale of the house, or when claimants return to work.". So if they don't sell the house or return to work, the loan won't need to be repaid.

Even if the price of your mortgage may be way lower than rent, causing savings to the exchequer.

But now, those with a mortgage can pay off their mortgage while they're working, effectively making "savings" which don't count as capital for the purposes of benefits. If it's a flexible mortgage, they can withdraw those "savings" (the overpayment) when ever they want. The same option isn't available to those renting, if they havesignificant savings, they get no means tested benefits.

The rational solution is to crash the housing market by several times, to get houses back to being houses at a static price, not an ever-appreciating asset.

Except a big crash would cause a financial crisis far worse than the one 8 years ago. Most retails banks and building societies would be insolvent as their assets (mortgages) would be worthless. Pretty much what happened in the US 8 years ago, except they bundled up worthless mortgages into CDO's and sold them on to mugs in the rest of the world...

But it would be sensible to have policies which stem house price inflation, such as introducing GCT on housing gains (with rollforwards), and having a sort of "bedroom tax" on everyone through council tax to discourage property "waste".

There are a couple of measures in the budget that could stem house price inflation like the limit to basic rate tax of mortgage expenses for landlords and reform of the wear are tear allowance, but the daft increase in the IHT allowance just for property will probably counteract these.

bloolagoon

midnight_express wrote: »

How long is the new waiting period ? When do the new rules start ?

39 weeks is the waiting period from 13 (I think it used to be 39).

2018 is the start date. All SMI payments after this date will be a loan (the interest rate calculated every 6 months). The loan is to be repaid when benefits end or at sale of the house. The interest accrues till sold.

MissMoneypenny

bloolagoon wrote: »

I don't have an issue with the charge aspect but do think the new waiting time is excessive. That's going to be very hard going as 13 weeks was hard enough.

It was always 39 weeks and maximim of 100k for SMI but during the recession that was changed as a temporary measure to help home owners. It was then reveiwed every year to see if the temporary measuse should be extended.

There have been posts on here where posters warned that this was only a temporary measure and that home owners should be taking out their own insurance.

tea-bag

Good another loop hole closed. People have had there mortgage payed off completely by the taxpayer. It is just a shame it is not retrospective.

missbiggles1

rogerblack wrote: »

But of course, it's just fine to buy the house for your landlord with HB, as he is considerably richer than you, and clearly needs the money.

The replaced SMI now means if you fall long-term ill, after paying off 90% of your home, you will lose your home in fairly short order, as the interest rate is going to be quite high.
Even if the price of your mortgage may be way lower than rent, causing savings to the exchequer.

The rational solution is to crash the housing market by several times, to get houses back to being houses at a static price, not an ever-appreciating asset.

In those circumstances, surely you'd just move somewhere cheaper?