Londoners are facing even more debt as a result of the crisis in interest rates and the cost of living crisis, according to a member of the London Assembly.
Since February, 65 London households in mortgage stress have been pushed into taking Support for Mortgage Interest Loans, taking the total to 1,383 – an increase of 5%.
Support for Mortgage Interest loans are payments from the Government for those on low incomes who cannot meet the interest payments on their mortgages. These loans must be repaid, with interest on them charged at 3.28%, but they are supposed to avoid the households having their homes repossessed.
The debt owed to the Government is usually paid off when the property is sold, meaning those who have used the scheme, or their families, retain less of the value of the home. For many, this will be when the homeowner dies and the ownership of the property is transferred.
Sem Moema, the London Assembly Labour Group spokesperson on housing, warns that this risks creating a “two-tier” system where poorer families lose even more of the value of their homes. Those who have taken out an SMI loan must forgo a larger value to the Government when the house is sold to repay the balance, including the interest.
These repayments threaten the future finances of the family, with poorer families losing the social mobility and financial security of homeownership because of the greater debt to be repaid to the Government.
London has seen the biggest jump in the number of those using the scheme. The jump in the number of Londoners taking up the loans marks the first rise in the figures since 2019. Previously, the scheme has not seen widespread take-up, with government research showing that those in financial distress are often adverse to being burdened with more debt.
Mortgage stress has increased over the past 12 months: 384,000 London households have been hit by rising mortgage rates since the mini-Budget last year, made up of those who are either on variable rate mortgages or have come off fixed rates since October 2022. The Resolution Foundation estimates that the average mortgagor in London will be paying £5,500 more a year by the end of the 2024 financial year, compared to before the KamiKwasi mini-budget in 2022.
Moema has been joined by London Mayor Sadiq Khan in calling for the SMI scheme to be returned to a grant, rather than a loan.
“These statistics show a worrying trend where some of the most economically vulnerable Londoners are being pushed into even more debt,” Moema said.
“Huge mortgage rate rises and the cost of living crisis are putting huge pressure on household budgets. These problems are failures of governments, not individual families. It’s not right that they have to take on even more debt when the Government should be taking action instead.”
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