Understanding SMI - is it worth it?

noblenomad

We recently have been confirmed that we can claim UC and have been told in our journal that we can look to apply for SMI loans.

I was sketchy at first, but the more I think about it, it may be a good option for us. However there's not much information out there of the future consequences of it's reality.

My spouse and I are under a "shared ownership" type scheme with out property that involves our council called affordable homes. We own 56% and the council owns the rest. We cannot buy to own 100% of the property but if we to sell, we would only be receiving 56% of the overall market value, whilst they keep their percent to keep the value of the property low for others.

Now, for our situation. We had been wanting to sell and move to a bigger property, but due to the interest rates on mortgages currently it would be unwise for us. We don't have much in savings and clearly not enough for a down payment for a bigger house, but we were hoping to get our deposit once we sell.

Now we are happy to stay a couple more years in our home and I worked out, if we applied for SMI loans we can make higher repayments towards our mortgage to release more equity when it comes to selling. In theory, releasing a big capital once we sell and pay off the SMI and other loans under our names, giving us a better outcome if we just stay put as we had been the last 4 years. The amount I'm looking at is something we wouldn't be able to save up for in the next 2-3 years.

My concern is, how reliable is the loan? I can't find information how the interest fluctuate and what it could potentially look like for us when it comes to selling as we can't stay in our property due to it's size. So it's inevitable for us that we would need to pay this back. 
Also, can we make higher repayments towards our mortgage if SMI are paying off the interest?

Any pros and cons for those whose been in a similar situation? Is it just worth not going for it, if we don't really need it?

Any advice or foresight is deeply appreciated before we make any decisions.

sheramber

https://www.gov.uk/support-for-mortgage-interest/repaying-your-loan

silvercar

Also, can we make higher repayments towards our mortgage if SMI are paying off the interest?

Compare the interest rates. If your mortgage rate is lower then paying a higher rate of interest on money borrowed to reduce the mortgage will cost you more when you come to sell. Eg say your mortgage rate is 4% and you mortgage is £150,000.  Through SMI you get a loan of £6000 and as you’ve saved this in mortgage payments, you decide to use it all to reduce your mortgage to £144,000. So your interest repayments drop by £240. If SMI is charged at 6%, then the SMI loan+interest would be £6000+£360. repayable on sale. So you’ve cost yourself an extra £120. (I’ve done all the calculations as interest only and annual payments, but the principle is the same on a repayment mortgage).