State should pay benefits to match mortgage rates

Lenders are urging the government to pay out Support for Mortgage Interest (SMI) to reflect borrower's mortgage rates and save around £26m a year or almost £40m with a cap of 1.5%.

Borrowers are eligible for SMI  if they are on income support, jobseeker's allowance and pension credit , and can claim payments to cover their mortgage interest at a flat rate of 3.63%, with all payments paid direct to the lender.

The Council Of Mortgage Lenders (CML) has also proposed in the case of overpayments, any extra money should be credited to the borrower's account, instead of the lender's.

The trade body advised the government the £200,000 qualifying level and the 13-week waiting period for entitlement to benefit should be maintained.

The CML also expressed an opinion that payments should continue to go directly to lenders, instead of benefit claimants to avoid further missed payments.

A two-year limit on payments of SMI may be appropriate for benefit claimants of working age, said the CML, and to help recover costs of paying SMI to elderly or long-term disabled claimants it accepts the principal of placing a second-charge on the property.