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Changes to Support for Mortgage Interest with effect from 5 January 2009 - Questions and answers
What are the main changes being introduced?
We are introducing a number of measures for new and some repeat working age claims (those that do not link under existing rules to previous claims) from 5 January 2009:
the waiting period before full Support for Mortgage Interest (SMI) on eligible loans is paid in Income Support (IS), income-based Jobseeker’s Allowance (JSA) and income-related Employment and Support Allowance (ESA), will be shortened from 39 or 26 weeks to 13 weeks; and changed from 50% SMI at 8 weeks to 13 weeks at full SMI for vulnerable customers for new working age claims;
the capital limit up to which mortgage interest can be met will increase from £100,000 to £200,000;
a two year time limit on payment of SMI will be introduced but only for new and some repeat income-based JSA claims; and
we will allow those in receipt of SMI over £100,000 to keep the higher capital limit when they move onto State Pension Credit from a working age benefit for as long as they remain entitled to State Pension Credit.
We are also freezing the Standard Interest Rate used as the basis of the SMI calculation at 6.08% for six months, for all existing and new SMI customers, including those claiming state pension credit.
Additionally, for those in receipt of relevant benefits, but who will not have completed their 26 or 39 week waiting period for SMI, at the 5th January 2009:
customers who have served 13 weeks or more of their waiting period by 5 January 2009 will be entitled to SMI on eligible housing costs from that date;
those who have served a period of less than 13 weeks at 5 January will receive SMI on eligible housing costs at the point at which they will have served a full 13 weeks;
those in vulnerable groups in receipt of the 50% rate at 5 January will continue to receive this rate on capital up to £100,000 until the 13 week point when they will receive the full rate on capital up to £200,000;
the higher capital limit of £200,000 will also apply to these groups as well as the two year time limit for those on Jobseeker’s Allowance.
When can new claims benefit from the new measures?
Claims made on or after 5 January 2009 can benefit from the new measures, as that is when the Regulations come into force.
Can claims made before the 5 January 2009 benefit from the new provisions?
Yes, those already in receipt of relevant benefits whose claim is live in the benefit week in which 5 January 2009 falls, and who have not completed their 26 or 39 week waiting period for SMI by the 5th January 2009 can benefit from these new provisions, and will also be subject to the two year limit for those on Jobseeker’s Allowance.
Will existing customers already in receipt of SMI benefit from any of the new SMI measures?
No. They will continue to receive SMI under the rules which applied at the time that they claimed benefit.
If a claim to benefit made on or after 5 January links to a claim made before the 5 January, would it be treated under the new or old rules?
It would be treated under the old rules. That is, any remainder of a 39 or 26 week waiting period will have to be served if it has not been served already, and the capital limit will be £100,000. The SMI would not be time limited for JSA customers.
What are the linking rules?
There is a 12 week linking period which applies to customers who make repeat claims to Income Support or income-based JSA. This rule links the housing costs in claims made within 12 weeks of each other as continuous so that, for example, the qualifying date for SMI is the same as it was in another earlier claim.
For customers who move into work or undertake programmes such as New Deal, there is a 52 week linking period where they were receiving payment of eligible mortgage interest when they left benefit to move into work.
There is a 26 week linking period for customers who leave benefit because their income from either child support or a Mortgage Payment Protection Insurance policy (MPPI) exceeds the amount of benefit to which they are entitled.
There is a 104 week linking period for Welfare to Work beneficiaries who become incapable of work again within 104 weeks.
How should claims be made?
Claims to benefit should be made in the ordinary way.
What is the new waiting period for SMI?
The waiting period before full SMI is paid in Income Support, Jobseeker’s Allowance and Employment and Support Allowance, will be 13 weeks for new working age claims from 5 January 2009.
People in vulnerable groups currently receive SMI at 50% of their eligible interest after a period of 8 weeks until week 26 when 100% of eligible interest is paid. Will this remain the case for new claims on or after 5 January?
No. The waiting period for vulnerable groups is being brought into line with the waiting period for all other working age customers. This means that vulnerable groups will receive 100% of eligible interest after a waiting period of 13 weeks.
Have Jobcentre Plus offices been informed of the changes?
Yes.
Will customers with existing claims currently serving a waiting period who will benefit from the reduction from 26 or 39 weeks to 13 weeks benefit immediately from the changes?
Given the challenge in identifying this group of people it is unlikely that the relevant changes will be made to benefit payments in the immediate future but arrears will be paid as soon as possible.
What happens at the end of the time limit on income based JSA claims?
After a period of two years of a continuous or linked claim, Support for Mortgage Interest will cease.
Can customers in receipt of income-based JSA claim SMI afresh?
If the two-year SMI entitlement is exhausted, it can be claimed afresh only where claims do not link. A waiting period of 13 weeks has to be served before SMI is payable, but the customer would start a new period of entitlement to two years SMI.
What about customers who move from Income Support to Pension Credit?
Currently, customers who are in receipt of Income Support, ESA or JSA immediately before they first become entitled to Pension Credit have their income protected by the inclusion of a transitional amount in their Pension Credit if their Income Support, ESA or JSA applicable amount exceeds the rate of Pension Credit to which they are entitled. This protection lasts until their SMI anniversary date (that is, up to a maximum of 12 months).
From 5 January 2009, the Government has decided to protect the entitlement to housing costs on capital up to £200,000 for those in receipt of the reformed SMI prior to pension age who transfer to Pension Credit. These customers will continue to receive assistance with their eligible housing costs up to the higher capital limit of £200,000 for as long as they remain entitled to State Pension Credit.
Do you intend to protect the position of customers who cease to be entitled to Income Support but then claim income-based JSA?
There is protection for the conditions of SMI for customers who move from Income Support to income based JSA, such as carers, and including Lone Parents and partners moving onto JSA under the conditionality proposals. These customers keep their existing capital limit at the point at which they move on to JSA, have no time-limiting applied, and do not have to serve a new waiting period where they claim within 12 weeks.
What about Lone Parents or partners who make new claims?
Those lone parents or partners who make new claims to JSA on or after 5 January 2009 who are not transferring from Income Support would be treated under the new provisions.
Is the position of customers who move from Employment and Support Allowance to JSA protected?
There is protection for the conditions of SMI for customers who move from ESA to JSA. These customers keep their existing capital limit at the point at which they move on to JSA, have no time-limiting applied, and do not have to serve a new waiting period.
Will payments still be made direct to lenders?
Yes, the reforms make no changes to the Mortgage Interest Direct scheme.
Will you review these reforms later?
We shall look to review the system of support for homeowners once housing market conditions are more favourable.
Some customers report that the interest rate used for SMI has reduced, when it should have been frozen at 6.08%. Why is that happening?
In his Pre-Budget Report, the Chancellor made clear that the Government would maintain the level of support for mortgage interest at 6.08% for six months.
Some people will experience a temporary drop below 6.08% (actually, 4.58%) because our IT systems normally “track” the Bank of England base rate, which was reduced from 6 November. It takes time to adjust our IT systems, but we are taking action to ensure that this is compensated for.
This is designed to deliver the Chancellor’s pledge. Overall, people will receive 6.08% throughout the relevant period.
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