Monthly Archives: November 2015

Under the Support for Mortgage Interest (SMI) scheme, the Government makes interest payments on the first £200,000 of outstanding mortgages for those who can’t afford it. This is normally paid directly to the lender. But while it’s currently a grant, from April 2018 it will be treated as a loan to all new and existing SMI claimants.

The Government says current claimants will receive guidance in advance on how this will work, and will need to decide if they wish to continue under the new loans system.

However, the Government has confirmed the loan will not be backdated, so any SMI that’s been paid to claimants before April 2018 will remain a benefit, with no obligation to be paid back.

How will the loan work? A low level of interest will be charged on the loans – forecast to be 2.9% in 2018/19 – and will be updated every six months in line with a complicated Government forecast for the value of gilts.

The loans will be secured on the claimant’s property as a ‘second charge’ (effectively a secured loan on top of the existing mortgage).

Technically, as this is a secured loan, the Government could repossess your home if you don’t repay the loan. However, the Department for Work and Pensions says in reality the Government would never repossess your home under these circumstances.

Loan recipients will then be liable to pay back the loan the sooner of when they return to work, or when they sell their property. When someone gets a job a repayment plan will be agreed. If you refuse to repay the loan it’ll be recovered from the sale of the property.

What happens if I can’t afford to pay the loan back? In the case of those who receive SMI for a long time (e.g. into their retirement and up to their death), the amount of SMI paid plus interest, along with an administration charge, would be recouped from the equity in the property when it is sold.

 

Will the Government pay my mortgage?

Short answer: no, it won’t. The one remaining scheme, Support for Mortgage Interest (SMI), can pay the mortgage interest for you. You’ll have to find the rest of the money yourself, if you can switch to an interest-only mortgage temporarily.

If you’re eligible for the Support for Mortgage Interest scheme, the Government steps in and makes interest payments on the first £200,000 of your outstanding mortgage for the time you can’t afford them. The level of interest is set by the Government; your specific rate isn’t used.

The current interest rate is 3.12%, although it’s subject to change each time the Bank of England average mortgage rate moves by at least 0.5% away from the current SMI rate.

This means as mortgage rates go up, the SMI rate will too – and similarly it will go down if mortgage rates drop, though the change only takes place a couple of months after the target’s hit.

Who’s eligible for SMI?

You need to be receiving income support, income-based jobseeker’s allowance (i-JSA), income-based employment & support allowance or pension credit. So if you’ve recently lost your job or had an income cut, it’s important you sign on, or you won’t get SMI.

The benefit currently kicks in 13 weeks after the person (or couple) responsible for paying the mortgage claims the initial benefit (except pension credit where you can claim straight away). However, it’s been announced that the waiting period for SMI will be increased to 39 weeks from April 2016. The cash will be paid directly to your lender.

If you are claiming jobseeker’s allowance, then you can only get SMI for up to two years. There’s no limit for recipients of other benefits.

Your eligibility for the scheme will automatically be assessed when you apply for an income-related benefit. It’s up and running in England, Wales and Scotland, with a similar system in Northern Ireland.

SMI stops paying out once your benefits stop – it’s usually when you return to work, or start working extra hours to earn more. However, you may be able to claim Mortgage Interest Run On (MIRO) to help you make the transition.

MIRO lasts for four weeks, and will be the same amount Support for Mortgage Interest paid, but the big difference is that MIRO’s paid to you, instead of to your lender as under SMI. Check if you’re eligible at Gov.uk.

Who can’t claim Support for Mortgage Interest?

You can’t claim if you’ve more than £16,000 in savings, or if you own more than one residential property.

If the benefit you’re claiming is pension credit, then the amount of mortgage that you can claim interest payments for is capped at £100,000, not £200,000. However, in this instance, you don’t have to wait the initial 13 weeks before claiming SMI either (39 weeks from 1 April 2016).

Buy-to-let landlords and people buying second homes will soon have to pay more in stamp duty, the chancellor has announced.

From April 2016, those in England and Wales will have to pay a 3% surcharge on each stamp duty band.

George Osborne said the new surcharge would raise £1bn extra for the Treasury by 2021.

Landlords reacted angrily to the change, saying it would “choke off” investment in rented properties.

Other changes announced by the chancellor included an extended Help to Buy scheme in London, and more money for the Starter Homes programme.

‘Choke off investment’

The stamp duty surcharge will lift each band by 3%. That means that for properties worth between £125,000 and £250,000, where the stamp duty is 2%, buy-to-let landlords will pay 5%.

For the average buy-to-let purchase of £184,000, that means they will pay an extra £5,520 from April 2016.

Commercial property investors, with more than 15 properties, are expected to be exempt from the new charges.

Stamp Duty Rates (on purchases)
Property value Standard rate Buy-to-let/second home rate (April 2016)
Up to £125,000 0% 3%
£125 – £250,000 2% 5%
£250 – £925,000 5% 8%
£925 – £1.5m 10% 13%
over £1.5m 12% 15%
Source: HMRC

Buy-to-let landlords will also be hit by a change to Capital Gains Tax (CGT) rules.

From April 2019, they will have to pay any CGT due within 30 days of selling a property, rather than waiting till the end of the tax year, as at present.

Landlords are already due to get a lower rate of tax relief on mortgage payments.

In his summer Budget, the chancellor said that landlords would only receive the basic rate of tax relief – 20% – on mortgage payments, a change being phased in from 2017.

Responding to the latest changes, Richard Lambert, chief executive of the National Landlords Association said: “The chancellor’s political intention is crystal clear; he wants to choke off future investment in private properties to rent.

“If it’s the chancellor’s intention to completely eradicate buy-to-let in the UK then it’s a mystery to us why he doesn’t just come out and say so”.

Up to £60m of the money raised from the stamp duty surcharge will go to help home-buyers in England in places where holiday homes have forced up local prices.

www.bbc.co.uk/news/business-34922738

 

The government has sold £13bn of former Northern Rock mortgages that taxpayers acquired during the financial crisis.

The portfolio is being sold by UK Asset Resolution (UKAR) to US investment firm Cerberus. The deal is thought to be the largest financial asset sale to date by a European government.

UKAR was the “bad bank” set up in 2010 to run down loans made by Northern Rock and Bradford & Bingley.

The mortgages are being sold for £280m above their book value.

The government has now sold more than 85% of the assets of Northern Rock, which collapsed in 2007 and marked the start of the financial crisis.

Chancellor George Osborne said: “We are now clear that taxpayers will get back more money from Northern Rock than they were forced to put in during the financial crisis.”

Click “here” to read more

 

The Bank of England’s Monetary Policy Committee (MPC) has voted by a majority of eight to one to hold the Bank Base Rate at 0.5%.

At the committee’s meeting held on 4 November, MPC member Ian McCafferty voted for the third consecutive month to increase the bank rate by 25 basis points.

The committee voted unanimously to maintain the Bank’s stock of purchased assets at £375m.