Mortgage interest scheme

Hi Happyman, sorry for the late response - I've just come across your question on here.

I've been getting support for mortgage interest for the past few years under the current loan scheme. My experience has been very mixed. The application process itself is pretty straightforward, although it did take a few months. I found the process to be very clear, and easy to understand at that stage. The amount of monthly mortgage contribution (loan) the DWP will make is based on a percentage (currently 3.66%) of the amount you owe on your mortgage. So if you owe £100,000 they will lend you £3660 a year, or £305 per month, paid directly to your lender. That's the easy bit.

This amount will fluctuate over time. The DWP changes the percentage contribution it makes - it could stay at 3.66%, or it may go up or down, based on an insanely opaque calculation method that hardly anyone outside the world of investment banking would ever understand - including anybody who works at the DWP. (the % rate is adjusted whenever the published Bank of England average mortgage rate differs from the current SMI rate by 0.5 percentage points or more - and good luck trying to find that in the Bank of England published statistics!). Bizarrely, the amount you owe your lender remains fixed in any subsequent calculation. So, if you owe £100,000 when you apply, this is always the amount that will be used for future calculations.

The most difficult part of the process for me was dealing with my mortgage lender (NatWest). They have been completely useless. Once they start receiving the monthly loan from the DWP they are supposed to reduce the amount that you pay. So in the £100k example I've given here, if your mortgage payment was £600 a month, your lender would receive £305 of it from DWP, and you would only need to pay £295. It's a simple concept, but my lender managed to get it wrong so many times, resulting in overpayments, underpayments, completely emptying my bank account once, and even taking no payment at all and reporting it as a missed payment to credit reference agencies. I've had to take them to the Financial Ombudsman twice, and had my complaint upheld both times. So there's a great deal of mental security in the hands of your lender, although I can't imagine any lender would be quite so consistently incompetent as the NatWest.

The other major downside to the SMI process, which I could never have imagined, is the complete lack of transparency from the DWP about how much debt you are accruing with them by entering into the loan. They are clear about how much they will lend you, and they are clear about the rate of interest you will have to pay on the loan, but you will never receive any sort of annual statement about how your debt is accruing. With any other loan, from any other provider, you are told at the outset how much the borrowing will cost you in real money terms. Because the amount of your loan will fluctuate over time (based on changes to both the rate of interest used to calculate the amount they lend you, and the separate rate of interest charged on the debt) there isn't any way to provide this information up front, but I thought I would at least receive an annual statement to show how the debt was growing. There are only two types of lender in the UK that don't provide this information: unlicensed illegal doorstep lenders, and the DWP. I tried for months to get some sort of statement, or even a vague idea of how much debt I had accumulated on my SMI loan, and the DWP had no idea what I was talking about. "We don't provide statements, but you can work out how much you've borrowed by getting a statement from your mortgage lender" was the final answer I got - which of course, does not provide any information whatsoever about how much compounding interest has been added to the debt. I really do think this is an huge black hole in the process. None of the money will need to be repaid until after I die, but my kids will have absolutely no way of knowing if the DWP demand for repayment out of my meagre estate is accurate. And honestly, how much faith do any of us have in the accuracy of the DWP?

But having said all of that, the SMI loan has certainly been a lifesaver for me. I really don't think I could have stayed in my home without it, and I genuinely don't think I would have survived the stress of becoming homeless. The stress of dealing with my lender and the DPW was completely overwhelming at times, and way beyond what anyone should ever have to deal with, never mind anyone with serious chronic illness, but it wasn't homelessness.

If I could afford not to have SMI I definitely wouldn't.

I don't suppose that's much of a recommendation!