Support for Mortgage Interest (SMI) provides help with mortgage payments to some people getting benefits such as Job Seekers Allowance and Pension Credit. In the July 2015 Budget, two significant changes were announced that will reduce this for new claimants:
- from April 2016, you will have to wait 39 weeks, up from 13 weeks, to get help;
- from April 2017, this benefit will be replaced by a loan on which interest will be charged, which you will have to repay when the house is sold or on death.
These changes come on top of the reduction in SMI which came in in July 2015, see Help with mortgage interest is being reduced.
*** UPDATE October 2015 – Labour is opposing this change, pointing out that it will affect pensioners particularly badly as they tend to have to claim SMI for longer periods,
Who can get help with their mortgage
If you are getting the income-based versions of Job Seekers Allowance (JSA), Employment and Support Allowance (ESA), Income Support or Pension Credit you may be entitled to help with the interest part of your mortgage repayments. In 2013, there were 220,000 people getting SMI, 40% were pensioners.
Some of the complications include:
- a 13 week waiting period before you get any payments – this will be increased from 13 weeks in 2015 to 39 weeks from April 2015;
- if your mortgage is more than £200,000 you won’t get any help with the extra;
- no help with costs of secured loans (this is one of the reasons why getting a secured loan to consolidate unsecured debt is a bad idea);
- help is now only paid at a rate of 3.12% even though most people will be paying a higher mortgage rate.
The 39 weeks delay
A world where everyone with a mortgage has enough savings to pay their mortgage for 9 months or insurance to cover these payments would be lovely – but it isn’t the world that we live in. By increasing the waiting period from 13 to 39 weeks, many people who lose their job or who are unable to work will in practice get mounting mortgage arrears and could be six months or more behind with the mortgage by the time SMI starts to be paid.
When SMI does kick in, it won’t cover the whole mortgage so there often needs to be a negotiation with the mortgage lender to try to avoid repossession – starting off from a position of six months arrears will make this much harder.
Moving to a loan – “A radical change”
Changing SMI from a benefit which doesn’t have to be repaid to a loan that does, might not sound so signifiant. The Budget said “Loans will be repaid upon sale of the house, or when claimants return to work. Payments will accrue interest at a rate tied to the OBR forecast of gilts.” so the interest rate won’t be high and after all it gives help when it is most needed.
However the Council of Mortgage Lenders director general Paul Smee said in response to the Budget:
“[changing SMI to a loan] is a radical change and we will need time to consider it and work through the practicalities and logistics. The systems and risk challenges for our members arising from such a change are potentially huge …
We will do our utmost, whatever the landscape of State provision, to keep in their homes customers whose problems are temporary and whose circumstances will allow them to get back on track over a reasonable timeframe. But this is a change that could have wide implications.”
The problem for the mortgage lender is that the fact that at the point where someone returns to work, the lender would expect them to make the normal mortgage payments and start repaying the mortgage arrears that are likely to have accrued. But when repaying SMI has to be done at the same time, this may affect the whole mortage affordability.
The key phrase in the above quote is “whose problems are temporary”. Mortgage lenders may have to make a decision more quickly about which borrowers are likely to have temporary problems. The implications may well be more repossessions for borrowers whose difficulties could be longer-term.
Are you struggling with mortgage repayments?
If you are have difficulty paying your mortgage, get advice as soon as possible, not just on your mortgage but on your whole benefit and debt situation. If you are getting contacted by credit card and unsecured loan lenders it may feel more urgent to pay them, but your mortgage and other “priority debts” such as council tax need to be paid first.
Your local Citizens Advice is a good place to talk through your situation because they specialise in benefits as well as debts.