Support for Mortgage Interest (SMI) payments are designed to help those who find themselves out of work – whether through redundancy, sickness or disability- to continue to make interest payments on their mortgage.
Payments are limited to two years except for those over 60 or those judged unable to work due to sickness or disability. Payments are currently only available to those working less than 16 hours a week and in receipt of Income Support, ESA, Job Seekers Allowance or Pension Credit.
As the recession began to bite in 2009 and house repossessions soared, the waiting period for SMI was cut to 13 weeks. Despite the Tories plunging the country back into recession, the Tories are consulting on increasing this to 39 weeks in January 2013.
This change was quietly announced in a consultation document published at the end of last year (PDF). It will mean householders who face unemployment will now have to wait nine months before receiving any support with housing costs. Few mortgage companies will be prepared to wait so long before calling in the bailiffs. The capital limit, which is the size of the mortgage that can have payments claimed against it, is to be halved from £200,000 to £100,000.
The document also reveals that the Government is considering making payments recoverable, should the householder die or sell the property. Currently those who are long term sick, have children or are pensioners can have mortgage interest paid indefinitely. Those who are simply unemployed have payments stopped after two years. The Government plans to extend this two year limit to include those with children or those who have been moved from disability benefits to job seekers allowance.
The new death tax will see these payments recovered when the claimants dies. The consultation document even reveals that the Government is considering making all SMI repayments recoverable on death.
SMI is to be bundled into Universal Credit, Iain Duncan Smith’s hugely expensive and ludicrously complex overhaul of the benefits system. The draft regulations, which have just been published, explain how the above changes will be enshrined in law, although as yet the Government is too squeamish to tell us the exact figures. So the Universal Credit regulations say that there “is to be a waiting period of [x] months before owner occupier claimants can receive help with their housing costs.”
It is only by referring to the previous document on SMI reform that the Government reveal their true intentions. However the next sentence in the Universal Credit regulations do contain one key phrase which tells us everything we need to know about where welfare reform is heading:
“This is based on the principle that it is reasonable to expect owner occupiers to make some provision, whether by insurance or savings, to fund their housing costs for a period in the event of a change in their circumstances such as unemployment or sickness.”
The inference is clear. Decent people will be expected to take out redundancy or income protection insurance as the Welfare State is whittled away. The uninsured squeezed middle may now find themselves plunged into mortgage arrears and repossessions should they lose their job or fall ill.
This dovetails with George Osborne’s bungled Child Benefit cuts for higher earners. The intention to undermine the Welfare State is clear. A universal system means that everyone has a stake in the Welfare State. This is being eroded. When the changes to SMI are introduced – which will also see SMI stopped for those who take on a few hours of work a week whilst looking for a full time job – huge numbers of people will no longer have a safety to ensure they can keep their home should they have to give up work.
With incomes continuously squeezed and prices soaring, many families, including those with mortgages, are already close to the breadline. Few will have the means to fund mortgage interest payments for up to nine months should they become ill or unemployed. Those who take out income protection schemes will resent even more than now that their tax and National Insurance payments are funding a Welfare State for other people.
Of course all of this will be cheered by the insurance industry sharks who have lurked in the shadows of welfare reform. It couldn’t be better news for the likes of Unum, the huge income protection insurance firm, who last year launched an advertising campaign for their income protection services. A leaked powerpoint presentation shows how Unum are training up their sales force on the benefit changes they helped design, warning that “benefits will fall significantly short of what most households need to pay their bills.”
Under the current system, those on an average salary get a good deal from the Welfare State. Income Protection schemes are expensive and far less comprehensive that the current benefits system, far from generous as it is. As the Welfare State is further eroded then the income protection racketeers will raise prices. The undermining of the welfare state is a huge confidence trick designed to fleece tax payers. Insurance companies will see their profits increase with every cut to welfare, especially those which attack the slightly better off, such as people affected by changes to Mortgage Interest Support.
The end result, if they succeed, will mean people paying more money for welfare insurance than they ever paid through the tax system, whilst receiving far less comprehensive protection.
All the benefit bashing, the suicides, the disability hate crime, as well as the poverty, homelessness and ill health that has been inflicted by welfare reform has had one key aim in mind. A big fat payday for private sector sharks like Unum.
The draft regulation for Universal Credit have just been published and are open to consultation at: http://ssac.independent.gov.uk/consult.shtml