CML calls for a change to support for mortgage rates interest payments.
Support for mortgage rates interest payments is paid by the government at a flat rate and, Shelter have come out in support for the CML’s call for the government to change the way the rate is calculated. In most cases the rate calculated differs from the actual mortgage rates borrowers pay.
At 3.63 per cent, the current rate of payment is determined by the BOE’s average mortgage rate. The CML says this results in many borrowers facing a shortfall because the benefit does not cover their interest payments in full, while others have their mortgages overpaid by the state.
The CML has said that they believe it would be fairer and cheaper for the government to pay the benefit based on borrowers individual mortgage rates. The CML has set out their arguments in response to an informal call for evidence on SMI by the Department for Work and Pensions.
Campbell Robb, chief executive of Shelter has said that a change in the way the benefit is calculated could help those people facing repossession. He added that SMI is a lifeline for thousands of home-owners and if payments were made in line with the rate payable on the individual borrower’s mortgage the government would save money and ensure that more households avoid repossession.
Research by the CML in 2011 suggested that the government could save around £26m a year if it paid the benefit at the mortgage rates payable on individual deals. Also, if the government applied a cap of 1.5 per cent above the current standard interest rate, it could save a further £13m, bringing the total annual saving to almost £40m.
