The warning came after official statistics revealed that less than 10 per cent of those who previously received help from the state with their mortgages had taken up the new loan offered in its place.
Low-income homeowners had been able to access the ‘support for mortgage interest’ (SMI) payment since it was introduced in 1948. The then-Labour government introduced the benefit to protect people who became ill, unemployed or retired from having their houses repossessed.
But under changes introduced by ministers from 6 April, low-income homeowners are now only able to access a loan that accrues interest.
Shadow housing secretary John Healey said: “Ministers’ botched cut to government help with mortgage costs is putting thousands of homeowners at risk of homelessness.
“There’s been state support for low-income homeowners since the 1940s, but ministers are now stripping away this vital safety net without any proper replacement.
“Government ministers must rethink this cruel cut and back pensioners and other low-income homeowners with the help they need to stay in their homes.”
When the government first assessed the policy in 2015 it predicted less than 10 per cent of people on low incomes would choose not to take out the loans.
The assessment said: “We assume that 5 per cent of working age claimants (those claiming through JSA, ESA or IS) and 8 per cent of those of pension age will choose not to receive SMI when it is converted to an interest bearing loan (based on an analysis that indicates these are the proportions of each group who have access to funds from other sources, for example beneficiaries or parents).
“This take-up assumption implies that 5,000 working age (5 per cent of 101,000) and 4,700 pension age (8 per cent of 59,000) claimants will choose not to take a loan.”
But only 10,000 out of a total 103,000 had accessed the loan scheme, the latest government figures showed. This means more than 90 per cent of low-income homeowners are not getting support.
A Department for Work and Pensions spokesman said: “Over time someone’s house is likely to increase in value, so it’s reasonable that anyone who has received financial help towards their mortgage should be asked to pay that back.
“People who sign up to the loan will continue to get help with their mortgage interest and it is only repayable if there is available equity when the property is sold.”
He added: “If people decide to decline the loan now but change their mind in future, the loan can be backdated so in effect there would be no break in payments.
“We have already contacted everyone currently in receipt of SMI to explain the change, but we are making sure people have time to review the documents, obtain advice and consider their options.”