Getting and paying a mortgage

ISMI payments only cover the interest on a mortgage and not capital repayments. In most cases therefore repayment mortgages (capital and interest) will not be suitable. This is because the amount of interest decreases over the term of the mortgage in proportion to the capital repaid. Your client would have to find an increasing amount of money from their own pocket over the years to repay the capital they borrowed.

The alternative is an interest-only mortgage. Since only the interest on the loan is repaid to the lender, ISMI will cover most or all of this payment. If it is a lender's requirement, ( and it is not always), that a 'savings vehicle' is used during the term of the mortgage to ensure there is a capital fund at the end of the term to repay the capital, the only way of doing this at present without potentially generating amounts of capital over the ISMI eligible benefit capital limits is to use an endowment policy.

Finding mortgage lenders who lend on the basis of ISMI payments is not easy and terms may be restrictive. Loan to value levels are often low. If your client has a mortgage already their first approach should be to their current lender. The same applies if they have a long or close relationship with a local branch as many managers still have some flexibility in arranging loans.

To claim ISMI your client will need to complete a form MI12 supplied by their benefits provider. They send this to their lender who confirms the details of the mortgage and returns it to the benefits provider who implements payment. Arrangements for paying a mortgage with ISMI need to be made carefully as the benefit received, and payments made, will not match exactly, either in amount or timescale.

You should confirm that your client can afford any other house buying costs. It may be useful for them to fill in an income and expenditure calculator. Remember, if it is likely that your client will return to work it is probable that they will lose entitlement to Income Support and ISMI. Any earnings must therefore be sufficient to cover the ongoing housing costs.