Struggling to pay the mortgage? An effective SMI scheme could make the difference
The Building Societies Association say the Support for Mortgage Interest scheme must be strengthened to protect those who need it most during the economic downturn | Credit: Alamy
With COVID-19 causing many people to feel the strain when it comes to paying their mortgage, an improved Support for Mortgage Interest scheme could help those who need it most.
Covid-19 has impacted everyone. Some people have found themselves unexpectedly better off, while others have been struggling financially and continue to struggle, despite the furlough and other support schemes. With government emergency support schemes coming to an end, there are large numbers of families who may be at risk of not being able to pay their mortgage. Only 30% of households have enough savings to pay their mortgage for two months1. It is because of this situation that we (UK Finance and the Building Societies Association) believe people need more support beyond the tailored ongoing lender forbearance as we move out of this crisis.
Support for Mortgage Interest
Support for Mortgage Interest (SMI) is a government scheme designed to pay the interest on a mortgage for eligible homeowners in financial difficulty. It is a loan, and should be paid back when the property is sold, and can be claimed on up to £200,000 of mortgage (or £100,000 mortgage for those on Pension Credit). It is also cheaper for the Government than Housing Support2.
The waiting time for SMI is currently nine months, which means homeowners are often more than six months in arrears before support is received. With this level of arrears it is very difficult for the homeowner to resolve their financial situation.
Helping people in crisis
We are asking the government for two key changes to SMI that we believe could help people who are struggling to pay their mortgage.
1. Reduce the waiting time for SMI to 13 weeks
After the last financial crisis, the waiting time was reduced from 39 weeks to 13 weeks. We are calling on the government to permanently reduce the SMI wait time to allow people to get support before their financial problems worsen and mortgage arrears start building up. 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.
2. Extend SMI support to homeowners on reduced income
People must receive benefits such as Job Seekers Allowance or Universal Credit to be eligible for SMI. But as people move from Job Seekers Allowance to Universal Credit the ‘zero-earnings’ rule means they are no longer able to get SMI if they receive any income from working.
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%) and working fewer hours (31%)3.
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. As SMI is a loan not a benefit, it does not need to be treated like other Universal Credit payments.
As we move out of this crisis, better support is needed for homeowners. Critical changes are needed now to make sure hundreds of thousands of households are helped before their financial situation deteriorates.
1https://www.smf.co.uk/publications/safe-as-houses/
2https://www.cps.org.uk/research/from-smi-to-mortgage-support/
3https://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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