A fifth of low income interest-only borrowers don’t understand product
The Support for Mortgage Interest report from the Department for Work and Pensions (DWP) looked specifically at borrowing into retirement, particularly for interest-only borrowers.
It found that most customers “understand the nature of the product and the need to repay capital at the end of the term and have a strategy in place”, albeit that this may not be sufficient or certain (as in the case of inheritance) to repay capital. Just three in ten planned to repay with an investment vehicle.
However, a subset do not understand what’s required of them. The report claims many low-income borrowers who plan on extending mortgage terms, remortgaging or downsizing and taking on new borrowing at a reduced level may not be able to as a result of criteria changes following the Mortgage Market Review (MMR).
The research also revealed not enough is known about Support for Mortgage Interest (SMI) despite the provision delivering “real benefits” to those claimants who do receive it.
Of those borrowers who had claimed, many of whom had “experienced an adverse life event and income shock”, SMI had “enabled them to maintain housing stability when they would otherwise have been unable to cover their mortgage payments and thus could have faced losing their home, which could have exacerbated already stressful personal circumstances”.
SMI is currently in the process of being reformed, as part of the wider Government Welfare Reform agenda. From April 2018, payments to lenders will now be treated as a state-backed loan to the mortgagor rather than a paid benefit.