Thousands of existing pension age homeowners will face additional costs when the Support for Mortgage Interest is changed from April next year.
The benefit is paid to approximately 124,000 people who are in receipt of Jobseekers Allowance, Universal Credit, Pension Credit or Income Support. Around half the claimants are pension age. Currently, mortgage interest is paid for eligible homeowners on amounts up to £200,000 of the mortgages. For homeowners who receive Pension Credit, the amount is up to £100,000.
The benefit does not have to be repaid under the current scheme, but new rules to be introduced in April 2018 mean that the benefit will be replaced by a loan, attracting interest. This will have to be repaid either when the homeowners dies, or the property is sold.
Letters will be sent out to homeowners who are currently in receipt of this benefit to warn them of the changes. Homeowners who are likely to be affected most will include pensioners who have interest only mortgages, as they will have to repay the loan and interest, along with the outstanding capital. Many people do not have the necessary funds to finance the outstanding capital on their interest only mortgage, and the addition of the Support for Mortgage Interest will increase their burden.
There are options that may be viable for homeowners, like lifetime mortgages, which a CeMAP qualified mortgage advisor can help with. Equity release options may be the solution for homeowners of pension age facing payment of their mortgage capital and loan repayments