Interest Only Mortgages

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).

Mortgages for the over 65’s

Over 65 and looking to remortgage or purchase a property. Is your current loan due to be repaid shortly and the back cannot extend the term?

You may be looking to consolidate some debts or would just like to raise some additional funds to possibly buy a new car.

Most of the high street banks and building societies restrict the term you can have your mortgage over, therefore being over 65 this could therefore restrict you to a maximum term of 5 years and must be in a repayment basis. However there are lenders and products that will consider applicants over the age of 65 up to the age of 89.

Mortgages for the over 65’s are still based on affordability and if you are over the age of 70 years, then this will be based on your pension income only.

Loans are generally taken out on a Repayment basis (Capital & Interest), however the lender will consider loans for the over 65’s on an Interest Only basis as long as you have a plausible repayment plan or vehicle.

If you would like a personal quotation, please call one of our qualified advisers who can take the facts and then advise you accordingly.

Call us on 01489 580020 or complete the “Contact Us” form for mortgages for the over 65’s.

Skipton BSSkipton raises interest-only income bar to £40,000

The mutual has introduced a minimum income requirement for all residential interest-only applications from today. Those who have obtained a decision in principle but have not submitted their application have until the 14 June 2013 to make their application under the old criteria.  The income requirement requires at least one applicant to earn more than £40,000. Combined income is not accepted.

Another lender closes its doors to Interest Only

RBS had stopped non-advised customers taking out interest-only policies in October, with the bank now claiming that interest-only mortgages were a ‘declining part’ of its overall mortgage book.

The lender denied last month that it would make changes to its interest-only policy, but has now taken the decision to close this type of lending to all borrowers.

It said existing customers will not be affected by the move and that both brands will continue to offer buy-to-let products on an interest only basis.

Moray McDonald, head of home lending at RBS and NatWest, commented: “Residential interest only mortgages have been a declining part of our mortgage lending, with only 4% of customers now applying on that basis.

“As a fast growing UK mortgage lender we want to focus on the products most of our customers are asking for.

“We don’t rule out offering residential interest only mortgages to niche customer groups in the future but we would do that using specialist advisers rather than our broad base of branch and telephony advisers.”

Nationwide has announced it will no longer offer interest-only mortgages to new or additional borrowers.

The change takes effect from Thursday 11th October.

A statement which went out to mortgage brokers read: “We will no longer offer interest-only mortgages for any new or additional borrowing.

“Existing customers may retain their interest-only mortgage, but cannot increase their borrowing on that basis.

There are no other changes to criteria or products.”

A spokesperson for Nationwide told Mortgage Solutions: “Nationwide has seen a sharp decline in lending on interest-only products in recent times and currently only 3% of our new lending is interest-only.

“This will not affect any existing customers as those already on interest-only will be able to continue on an interest-only basis, only existing borrowers seeking to increase their loan will be moved onto a repayment product.”

A level term policy pays out a lump sum if you die within the specified term. The amount you are covered for remains level throughout the term. The monthly or annual premiums you pay can be guaranteed or reviewable.

Level term insurance can provide cover for interest only mortgages, not covered by an endowment or family protection providing a lump sum for the surviving partner to provide for the family.

Mortgages
life insurance
home insurance
equity release

We offer whole of market advice for all types of customers, whether you are a first time buyer, home mover or looking to purchase a buy to let property. Being independent we are able to offer impartial advice from the whole of the market to ensure you get the product that suits your financial needs.

Whether you are looking to protect your mortgage payments or your family, we provide independent advice for life insurance, critical illness cover and income protection from a wide range of providers.

Buildings Insurance is a requirement when you complete on a mortgage the cover is to provide security to the lender, the insurance covers the main structure of your home. It will cover you for subsidence, storm, flood, fire or smoke damage and cover the costs of rebuilding or repair.

Equity release is a way of releasing cash from your property, either through selling a percentage to the reversion company or taking a mortgage on it, while allowing you, the homeowner to continue living there as long as you wish.