UK Finance and the Building Societies Association are calling for important changes to be made to the Support for Mortgage Interest (SMI) scheme to help struggling homeowners as the furlough scheme draws to a close.
SMI is a government loan scheme which helps homeowners who are in receipt of benefits[1], but as it stands, they must wait 39 weeks to claim, during which time their financial situation may become so difficult that they are unable to remain in their home.
The government’s furlough scheme, alongside other support measures, have protected millions of people from significant financial difficulties during the pandemic. However, furlough is just two weeks away from closing so we are calling for two key changes from government:
SMI is a loan and not a benefit, meaning these changes will have a very limited impact on the government purse, but will have a huge impact on the households that will benefit.
Mortgage lenders have provided over 2.9 million mortgage payment deferrals to help homeowners during the pandemic. However, whilst lenders will continue to support those still struggling, some homeowners will also benefit from SMI.
Paul Broadhead, Head of Mortgage and Housing Policy at the BSA said:
“With the end of the furlough scheme only days away, there is a likelihood that unemployment will rise. Without urgent modification of the SMI scheme the risk of home repossession could become a reality for many despite the best efforts of lenders.
“Without the reforms, we expect more government funding will be required for the provision of housing benefits for former homeowners who were unable to get the financial support they needed, when they needed it.”
Charles Roe, Director of Mortgages at UK Finance said:
"The current wait time and eligibility criteria for SMI is preventing much-needed help going to struggling homeowners before their mortgage arrears start building up. As the furlough scheme comes to a close, we may see more people needing to use SMI. UK Finance and the BSA are calling on the government to urgently review the scheme’s eligibility criteria and reduce the existing wait time of over nine months."
Jane Tully, director of external affairs and partnerships at the Money Advice Trust, the charity that runs National Debtline, said:
“With furlough ending on 1 October and with many people facing the risk of unemployment and reduced hours, accessing support through Universal Credit and Support for Mortgage Interest will be crucial.
“However, for homeowners struggling to meet mortgage payments, the 39 week wait for help from SMI, risks the build-up of arrears and potential home repossession.
“Mortgage borrowers caught at the sharp end of the impact of Covid, need the Government to act now by reducing the wait for SMI to 13 weeks and changing the earnings rules under Universal Credit to ensure they can access the vital support they need.”
Ends
Background
The two key asks are:
Research[2]suggests that only 30 per cent of households have enough savings to pay their mortgage for two months, but the wait time for those eligible to claim SMI is currently nine months. This means homeowners could accumulate more than six months arrears before they receive much-needed support making it significantly harder to manage and resolve their financial difficulties.
Lenders are calling on the government to bring in changes which permanently reduce the SMI wait time to 13 weeks, as it was after the last financial crisis. For someone who lost their job during lockdown and is struggling to make ends meet, this change could make a real difference to their financial circumstances.
People must receive benefits such as Jobseeker’s Allowance (JSA) or Universal Credit (UC) to be eligible for SMI. But as people move from JSA to UC the zero-earnings rule means they are no longer able to get SMI if they receive any income from work.
Changing eligibility to include those who are experiencing reduced income is not about keeping people in homes they can’t afford. It provides them with time to reassess their financial position and sell their property if necessary, whilst avoiding the trauma of repossession. Repossession is also likely to have a negative impact on an individual’s credit rating, causing further long-term financial consequences.
One in ten[3]homeowners said it was difficult to keep up mortgage payments in the last year, with the top reasons including being furloughed or on reduced pay (34 per cent) and working fewer hours (31 per cent).
We are calling for the zero-earnings rule to be removed from the UC SMI eligibility criteria, so that people can work up to 16 hours a week without it affecting their SMI claim. In addition, as SMI is a loan not a benefit, it does not need to be treated like other UC payments.
SMI payments are made directly to the mortgage lender and can be claimed on up to £200,000 of mortgage (or £100,000 mortgage for those on Pension Credit).
In 2016 the government extended the wait time for SMI from 13 weeks to 39 weeks. Then in 2018 a further change to SMI saw it move from a benefit to a loan which needs to be repaid with interest when the property is sold.
Notes
1. Support for Mortgage Interest (SMI) is a loan issued by the Department for Work and Pensions (DWP) to support eligible homeowners who are in receipt of Income Support, income-based Jobseeker’s Allowance (JSA), income-related Employment and Support Allowance (ESA), Pension Credit or Universal Credit (UC) providing they have zero earnings. SMI payments are made directly to the mortgage lender and can be claimed on up to £200,000 of mortgage (or £100,000 mortgage for those on Pension Credit).
In 2016 the government extended the wait time for SMI from 13 weeks to 39 weeks. Then in 2018 a further change to SMI saw it move from a benefit to a loan which needs to be repaid with interest when the property is sold.
2. Social Market Foundation – Safe as Houses Report https://www.smf.co.uk/publications/safe-as-houses/
3. The English Housing Survey November – December 2020: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/978991/Household_Resilience_Study_Wave_2_November-December_2020_Report.pdf
Contacts
BSA Press Office
Tanya Jackson, External Affairs, Tel: 07881 501098, tanya.jackson@bsa.org.uk
UK Finance Press Office
Press Office - 020 7416 6750, press@ukfinance.org.uk
Notes to Editors
Paul Broadhead, Head of Mortgage and Housing Policy at the BSA and Charles Roe, Director of Mortgages at UK Finance are available for interview. Please use the contact details above to arrange.
The Building Societies Association (BSA) represents all 43 UK building societies, as well as 6 credit unions. Building societies have total assets of over £435 billion and, together with their subsidiaries, hold residential mortgages over £338 billion, 23% of the total outstanding in the UK. They hold over £297 billion of retail deposits, accounting for 17% of all such deposits in the UK. Building societies account for 37% of all cash ISA balances. They employ approximately 42,500 full and part-time staff and operate through approximately 1,470 branches.
UK Finance is the collective voice for the banking and finance industry. Representing around 300 firms across the industry, we act to enhance competitiveness, support customers and facilitate innovation.