New research published today by the Department for Work and Pensions (DWP) presents findings from an evaluation of the responses of key stakeholders to the January 2009 and October 2010 arrangements for Support for Mortgage Interest (SMI).
The report is the second part of a wider evaluation and explores the responses of lenders, money advisors, Jobcentre Plus (JCP) staff and key policy stakeholders.
The main summary findings are:
- From January 2009 to October 2010, SMI temporary measures were generally highly effective. As a result of the changes some borrowers avoided arrears. Others accumulated arrears more slowly. The SMI changes underpinned lenders’ willingness, and ability, to forbear and not seek possession. Lenders were more prepared to consider conversion to interest-only mortgages thus ensuring the maximum impact of SMI.
- There was no evidence that the introduction of a two year limit for new JSA claimants had any impact on the way lenders responded to borrowers in 2009.
- The SMI changes were implemented in a context of falling interest rates and this ‘added value’ to SMI to a very significant extent.
- The effectiveness of SMI is constrained by shortcomings in the assessment and administrative processes associated with SMI. Lenders, borrowers and JCP all contribute to these shortcomings, which stem from the complexity of the scheme.
- The effectiveness of SMI may also be reduced where lenders are unwilling or unable to convert a borrower’s mortgage to interest-only as the borrower still has to meet capital payments to preclude arrears.
- Overall, however, the 2009 changes resulted in more people being assisted, more fully and sooner.
- The October 2010 reduction in the SIR from 6.08 to 3.63% was detrimental to borrowers with many lenders reporting an increase in borrowers with shortfalls on their accounts.
- The communication by DWP, JCP and PDCS to recipients of SMI about the 2010 SIR change was judged by lenders, money advisors and key players to be late, poorly expressed and counterproductive.
- Lenders are increasingly showing signs of reconsidering their approach to forbearance as arrears mount.
- The impact of the 2 year limit on SMI for JSA recipients is now materialising with all parties seeing little scope for any action other than repossession.
Notes to Editors:
- The research is based on findings from in-depth qualitative interviews with twenty four lenders, money advisors, Jobcentre Plus (JCP) staff and key policy stakeholders.
- This report was written by Janet Ford and Alison Wallace from Centre for Housing Policy, University of York, Moira Munro and Nigel Sprigings from Glasgow University and Susan Smith from University of Cambridge.
- The first part of the evaluation was published as DWP Research Report 711 in November 2010 and examined borrowers’ experience of the 2009 temporary measures for Support for Mortgage Interest (SMI).