To ask the Secretary of State for Work and Pensions, if he will make an assessment of the potential merits of fixing the interest rate used to determine payments under the Support for Mortgage Interest scheme to a set amount above the Bank of England Base Rate to better reflect the impact on those in receipt of SMI.
The interest rate we pay for SMI is based on the Bank of England published average mortgage rate. We do not align payment to the base rate because this would lead to uncertainty for both borrower and lender as well as increasing the administrative burden.
An increase to the rate paid through the SMI scheme was triggered on Wednesday 29th March 2023.This rate increased from 2.09% to 2.65% and will be implemented on 10th May 2023. Any further changes to the standard interest rate will only occur when the Bank of England average mortgage rate differs by 0.5 percentage points or more from the rate in payment.
We currently have no plans to amend the calculation of SMI. We have selected the Bank of England’s published average rate because it is the average interest rate that applies to outstanding mortgages, including fixed and variable mortgages. The Bank of England data is the most reliable as it is based on information that covers over 75% of all banks and building societies’ mortgage business. It is also updated on a regular (monthly) basis.
If we were to base the rate we pay on the Bank of England Base rate, we would pay over and above the average interest rate paid by fixed rate mortgage holders. Conversely, the rate would be too low when the base rate is set at a low level such as the 0.1 base rate between March 2020 and December 2021.