Support for Mortgage Interest (SMI) helps struggling homeowners every year, but critical changes are needed to make sure hundreds of thousands of households are helped before their financial situation deteriorates.
As it stands, struggling homeowners are left to wait 39 weeks to claim SMI, which could make their financial situation worse. The Building Societies Association and UK Finance are calling for changes to SMI to help these homeowners to avoid their financial situation deteriorating by getting help sooner.
We are asking the government for two key changes:
SMI is a loan and not a benefit, meaning that changes will have a very limited impact on the government purse but have a huge impact on the households that will benefit.
Mortgage lenders have provided over 2.75 million mortgage payment deferrals to help homeowners who were struggling because of Covid-19. However, emergency support measures are coming to an end and although lenders have other forbearance measures available to help those still struggling, SMI is a vital support option.
Recent research 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 Job Seekers 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.
One in ten 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 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.
Commenting, Paul Broadhead, Head of Mortgage and Housing Policy at the BSA said:
“Lenders, government and regulators have collaborated well during the Covid-19 pandemic to ensure support has been available to mortgage holders who have experienced financial difficulties. However, as the end of these schemes is now in sight and unemployment looks set to rise sharply, without some further action the risk of home repossession could become a reality for many families and individuals despite the best efforts of lenders.
“To support struggling homeowners as they adjust to their new normal, modifications to the Support for Mortgage Interest scheme are needed now. With SMI already restructured as a loan rather than a benefit, reducing the wait time and making the scheme more flexible would not only provide a compassionate response to those financially impacted as a result of the pandemic, it shouldn’t have a long-term impact on government expenditure.
“Without the reforms we are recommending, 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 wait time and eligibility criteria for Support for Mortgage Interest is preventing much-needed help going to struggling homeowners when they need it most – before their financial circumstances get worse and mortgage arrears start building up. We are calling on the government to urgently review the SMI scheme eligibility criteria to ensure those struggling with payments are not waiting over nine months before they can access this support."
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 Job Seekers Allowance (JSA), income-related Employment and Support Allowance (ESA) or Universal Credit (UC) providing they have zero earnings or Pension Credit. 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
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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.
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