NEWS FROM SEM MOEMA AM: Support for Mortgage Loans are pushing more Londoners into debt and threatening social mobility

Sem Moema AM warns of threats to social mobility as 1,383 vulnerable London households pushed into more debt to pay off mortgage interest.  

Vulnerable Londoners are facing even more debt as a result of the crisis in interest rates and the cost of living crisis, London Labour Assembly Member Sem Moema has said.

65 more London households in mortgage stress have been pushed into taking into Support for Mortgage Interest Loans, taking the total to 1383 – an increase of 5% since February.

Support for Mortgage Interest Loans are payments from the Government for those on low incomes who cannot meet the interest payments on their mortgages, whereby more debt is taken on to avoid repossession. These loans must be repaid, with interest on them charged at 3.28%.

The debt owed to the Government is 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.

Ms Moema 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.

Despite the disincentives to taking on more debt, London has seen the biggest jump in the number of those using the scheme – going from 1318 to 1383 households.

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 Q4 2024, compared to Q3 2022 when the mini budget was announced.

Assembly Member Moema has called for greater support for Londoners on low incomes facing mortgage cost rises previously, demanding Government action to relieve mortgage stress in the capital. She has been joined by the Mayor to call for the scheme to be returned to a grant rather than a loan.

Labour London Assembly Member and spokesperson for housing, Sem Moema AM said:

“These statistics show a worrying trend where some of the most economically vulnerable Londoners are being pushed into even more debt.

“Whether that is because they’ve lost their jobs, suffered an injury or had to stop work for another reason, it’s not right that the Government is taking more of the value of their home – creating a two-tier system where poorer Londoners lose more of the financial benefits of home ownership while richer ones do not.

“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.”