In Britain, disabled homeowners fear repossession as mortgage interest payments cut

From The Guardian in the UK:

Disability and housing organisations are accusing the government of potentially forcing thousands of disabled homeowners into arrears or even having their properties repossessed because of cutbacks in mortgage benefits and care packages.

The most scathing attack comes from the National Housing Federation (NHF). It says some 64,000 people with disabilities now get monthly help through the Support for Mortgage Interest (SMI) system. This is a complex calculation, paid directly every four weeks by the government to mortgage lenders on behalf of disabled borrowers, currently at the rate of 6.08%.

If the 6.08% is in excess of the interest payable on a disabled person's mortgage, the "extra" goes towards paying off the principal debt; if it is less, the borrower must make up the difference or slide into arrears.

But the method of calculating the SMI – which is also paid to people who have lost their jobs – is changing and from October the amount will be set at a level equal to the Bank of England's published monthly average mortgage interest rate, currently 3.63%. This is still well above some current mortgage interest rates but far below others, even before expected base rate rises in late 2010 or in 2011.

Ministers announced the SMI change in the June emergency budget, but campaigners have only recently realised the effect. .

Some SMI beneficiaries are first-time buyers while others are existing owners who may have recently suffered a physical or mental impairment and whose properties now require substantial modification. Potential SMI income is considered by some lenders when they decide whether to grant a loan to a disabled applicant.

It is thought that the SMI recalculation will hit about 5,000 owners with profound physical and mental disabilities who have used the payments to secure niche – and expensive – mortgages on shared ownership homes. For these properties, the mortgage covers a share of 25% to 75% and the owner pays rent to a housing association for the remaining share of the property.

"This policy will hit thousands of people with disabilities, cutting off many from the prospect of owning their own home. The fact that ministers have not carried out a comprehensive impact assessment into such a major decision is very disquieting," says NHF chief executive David Orr.

Ray Boulger of mortgage broker John Charcol says the government may be financially justified in making the change, but believes the process is being mishandled.

"The 6.08% figure existed in 2008 when typical interest rates were running at 5% so there is an argument for change given the sharp reduction in rates since that time. But by not tailoring the SMI rate to the individuals' needs, there will always be some who get too much and some too little. It's disappointing that the coalition has just changed the figure and not changed the process into one that's fairer," says Boulger.

Disability Alliance, a charity working to help disabled people out of poverty, says it is discussing the SMI change with the government. "The reality is that this is just one of a series of disadvantages that disabled people have. First, it's difficult for them to find appropriately accessible property, then it's very hard to obtain a mortgage because there may be reduced earning potential," says its policy director, Neil Coyne.

Some disabled home owners and their families are now suffering additional financial problems thanks to council cutbacks. As part of attempts to cut public spending, many authorities are reviewing their facilities grants. These are discretionary sums, often a few hundred pounds, paid to owners who must install ramps or fit stairlifts when a household member becomes disabled.

Anastasia Kelly, executive director of the Sheffield Centre for Independent Living, an advice body for the disabled and their carers, says: "There's an inconsistent response from different local authorities because there are no national guidelines on how payments are made. Now we have to help a lot of people who are finding it harder to get these grants as councils review spending,".

The proposed SMI changes will also worsen the problems of those with disabilities who rent their homes.

"Because of the high cost of housing and the difficulty in getting a mortgage, especially if the earning potential is limited through disability, the majority of disabled people rent rather than own. The lower SMI payments mean even fewer disabled will secure mortgages, so the pressure on the rented sector will rise still further," says Conrad Hodgkinson of the Accessible Property Register.

He set up the register in 2003 to publicise homes on sale that have modifications for physically impaired owners, but he says the crisis for many is in the "pretty dire" rented sector.

"There's a lack of supply of homes to rent to begin with, plus a lack of information about whether the homes are adapted for disabled residents. Now there's the severe financial problems, made worse by the SMI issue and other cutbacks," he says. "The picture is absolutely desperate for many disabled people."