Support for Mortgage Interest (SMI) helps people with the cost of their mortgage if they aren’t working. It has been paid as a benefit since 1948, but in April 2018 this changed and now it is only given as a loan that is secured on your house.
Here is the DWP leaflet describing the new loan: DWP SMI Factsheet (6 April). You may see LMI (loans for Morgage Interest) used as the new name for this, but the government is continuing to use the term SMI.
You will get the same amount of money every month as a loan. This is a cheap loan from the UK government, and you don’t have to start repaying it until the house is sold, but many people are finding this very worrying and so they haven’t agreed to take the new loan.
By 18 April 2018, two weeks after the switch over was supposed to have happened, only 18,000 households had agreed to take the new secured loans out of the 103,000 the DWP says were receiving the SMI as a benefit. I think this is a shocking figure, see SMI watch – 24 April – slow progress.
How much help does the new loan give?
If you were getting SMI before April, the answer is simple:
- the new loan will give you exactly the same amount of money as you were getting through the old SMI;
- it will still be paid directly to your mortgage lender each month;
- you don’t have to reapply – but you do need to sign up to the loan documentation;
- there is no new waiting period before the loan is paid.
For people who haven’t been getting SMI here is a brief overview of how this mortgage help works:
Who gets SMI?
In March 2018, there were about 90,000 people getting SMI help with their mortgage:
- about half were pensioners who get Pension Credit. They tend to be on SMI for long periods and often have an interest-only mortgage.
- the other half are younger, not working and receiving one of: JSA; ESA; Income Support; or Universal Credit.
SMI not payable for 39 weeks
If you lose your job, you can’t claim SMI for 39 weeks. Many people don’t have enough redundancy pay, savings or insurance to get them through to this 39 week point, so by the time SMI starts being paid, you may already have mortgage arrears.
It doesn’t cover your full mortgage
The help SMI gives is likely to be less than your monthly repayments for three reasons:
- SMI only helps with the interest part of your mortgage repayments, not the capital.
- There is a cap on the maximum amount of a mortgage you can get help with – this is £200,000 for working age claimants and £100,000 for pensioners.
- SMI is calculated based on an artificially low rate – the average interest rate for new mortgages. In June 2017 it was reduced to only 2.61%. This is unfair. Most SMI claimants have older mortgages and are likely to be paying much more interest than that and they are not working so they can’t remortgage on good rate new deals.
How the loan will work
The legal terms for the loan arrangements are described in this government document.
In September 2017, the DWP started sending letters to people who were getting SMI to explain what is changing and say that they will receive a phone call from Serco within the next three weeks to explain it further. The loan itself is from the government, not from Serco.
The letter explained the “offer” of a secured loan. It is an offer because you don’t have to accept it, but if you haven’t, your current SMI benefit will end after April 2018 (apart from some transitional arrangements, see below). There is no option to stay on the current benefit.
How the loan is calculated
Each month the loan will increase by the amount that the government is paying to your mortgage provider plus the interest added
Interest will be charged on the loan at the OBR’s forecast of the gilt rate – at the moment this forecast for 2018 is 1.5%. This interest rate is variable so it is expected to go up over the next few years but it is always likely to be lower than your mortgage rate.
Repaying the loan
You don’t have to make any monthly repayments to this loan, even if your finances improve so you stop getting help with your mortgage interest. But if you want, you can repay the loan, or part of it, at any time, with a minimum repayment of £100.
Otherwise, the loan will be repayable when your house is sold or transferred to someone else, or on death.
If there isn’t enough money to repay the loan, the rest will be written off, so this can’t become a problem for you if you sell your house or your children after you die.
To accept the offer
To accept the offer, you first have to have a telephone conversation that will outline your other options – basically getting help from friends/family instead of the new loan or deciding to sell your house.
Then you (and your partner if the house is jointly owned and you live together) will need to sign the loan agreement and a charge form. The charge will be registered at the Land Registry.
Should you agree to this?
It’s a cheap loan – is it a problem?
You probably don’t have any better options, see below. But this loan from the government isn’t good news for two groups of claimants:
- if you are only temporarily out of work – perhaps while your children are very young or until you find another job – then having this secured loan will reduce your equity and make it harder for you to remortgage at a good rate in future.
- if you are a pensioner with an interest-only loan, you may have been hoping your equity will build up over the next few years until your mortgage ends. This new secured loan will reduce the equity you end up with – this may make it harder to get a new mortgage, or equity release, or to downsize to somewhere with no mortgage.
At the moment, mortgage companies are slow to repossess a house if there are mortgage arrears. It is possible that if you don’t have a lot of equity, this secured loan will mean your mortgage company may decide to repossess sooner… but it will be a while until it’s clear if this is a problem or not.
Do you have a better option?
In practice most people won’t have a better alternative to this government loan:
- it will be at a lower interest rate than you could get from banks or other commercial lenders;
- as you don’t have a job, there are unlikely to be any options involving remortgaging that would help;
- if you don’t take the loan and just let mortgage arrears accumulate, your house is likely to be repossessed;
- you don’t have to make any repayments to this loan, even if you start work.
So unless you have a lot of savings you could use, or there are relatives who could help you, you probably should take the loan.
Planning to cut back elsewhere, or sell things from your house could turn out to be very stressful and difficult – you may end up with mortgage arrears.
It’s also not a good idea to use all your savings to delay the point at which you need the loan – that will leave you with problems if any repairs are needed to your house or if you have an unexpectedly large bill, so make sure you keep a reasonable emergency fund.
If you are unsure, go to your local Citizens Advice and ask for their assistance, to look at this loan and at the rest of your situation, including your benefits and other debts.
“Transitional arrangements” and backdating if you change your mind
Many people getting SMI haven’t actually had the phone call with the formal offer of a loan from Serco. As a result, the government has had to introduce some transitional arrangements to mean that these people’s SMI isn’t going to suddenly stop.
A lot more people have been saying they don’t want the loan than the government expected. The government has decided to allow people to change their mind and start getting the new loan, with no waiting period. And the loan can also be backdated if you want.
See what happens if you haven’t agreed to take the loan? for more about the transitional arrangements and changing your mind about taking the loan.
Telephone numbers for the DWP for SMI issues
If you are over State Pension age:
Telephone: 0800 731 0469
Textphone: 0800 731 0464
Welsh language: 0800 731 0453
If you are under State Pension age:
Telephone: 0800 169 0310
Textphone: 0800 169 0314
Welsh language: 0800 328 1744
Some media coverage of SMI changes
Take our loan, or lose your home… Vulnerable property owners face a (costly) offer they can’t refuse – as official safety net is snatched away (Mail 31 October 2017)
Anger as thousands unaware they face a ‘second mortgage’ (Guardian 5 February 2018)
Radio 4 Moneybox (10 February 2018) with Gareth Morgan, who often comments here
Calls for controversial mortgage scheme to be halted (Moneywise 2 March 2018)
Radio 4 Moneybox (17 March 2018) with the DWP minister – and me!
Warning – if the state helps pay your mortgage interest, act now or it’ll be stopped MoneySavingExpert 20 March 2018)
Major mortgage benefit is being axed TODAY – here’s what you need to know (Mirror 6 April 2018)
Labour urges rethink on mortgage benefits (BBC 6 April 2018)
This article was first published in August 2017 but it is kept up to date.
Should you remortgage after a fix ends?
Selling the house – a hard choice
Options for repaying an IO mortgage
RMD777 says
Hello Sara,
I have received my revised ESA letter in recognition of now receiving SMI Loan.
I used to receive £56.47 per week for Housing Costs and now do not. It is seems to say that I receive SMI Loan as part of my benefits as if the £56.47 is still paid.
The heading for Housing Costs has disappeared along with the £56.47. I am now liable for this amount. Is it that the government are reducing my benefits because I live in a mortgaged property rather than rented even though the latter would cost considerably more?
Please can you advise if this can be appealed and if this is common cause for appeal please?
Many thanks once a gain for your excellent resource.
Sara (Debt Camel) says
Have you signed up to take the new loan?
RMD777 says
Hello Sara,
Yes I signed the loan that replaced DWP mortgage assistance benefit with SMI Loan started 5/6th April which I believe I am still on. I heard something about LMI replacing SMI already but not aware of any changes. Thank you.
Sara (Debt Camel) says
OK, well it is my understanding that the loan will then be paid directly to your lender who should still be getting the same amount, but it doesn’t appear on your ESA letter as it is no longer given as a benefit. “LMI” is a new acronym that is being used for the new loan, but most government publications are still calling the loan SMI.
I suggest waiting until the end of the month and then checking with your mortgage lender that the payments have been credited to your mortgage account.
Alan says
Hello,
I am wondering if someone can help me.
I agreed to sign up for the new SMI Loan, I have filled in all of the forms but as yet I have not received any confirmation on whether the payments will continue to be sent to my mortgage lender.
Whenever I telephone the DWP they told me that there was a delay in the payments being sent out to my mortgage lender.
Yesterday I received a letter from my mortgage lender stating that I was in arrears for just over £300.00 and that I need to pay them a further £255.00 as they have not received any payment from DWP.
What should I do?
Please can someone help to advise me this situation.
Kind regards.
Alan.
Sara (Debt Camel) says
When did you send the documents back? Have you told your mortgage lender that you have signed up for the new SMI loan?
Andrew Mclay says
I am currently on JSA and as yet i have not taken the loan.If i decide to take the loan and lets say 6 months later i get a job,do i have to pay the loan back immediately or when i sell the property or is the loan written off?
Sara (Debt Camel) says
You do not have to start repaying the loan when you get a job, but you can choose to if you want to.
If you don’t pay off the loan, then it will be repaid when the property is sold. If there is not enough equity to repay it at that point, the remainder will be written off.
Those are the facts. The following points are more speculative, just things that you may want to think about when deciding whether to repay the loan when you get a job:
– getting the second charge removed from your house may make it easier to remortgage at a good rate
– the government loan is at a very cheap rate of interest. Your mortgage and any other debts you have are probably charging more, so you may want to use spare money to reduce those more expensive debts rather than repay the SMI loan.
– how secure is the new job? If you are worried about this, it would be better to save up any spare money into an emergency fund. If you lose the new job again in a years time that will then give you some money to hel0p you get through the 39 week wait until you can again get help with the mortgage.
Brian Caffrey says
I received a letter some days ago, dated April 5. In it they state that because I am now £1.38 over the minimum to live on, I am no longer entitled to Guaranteed Pension Credit, and have been switched to Savings Credit. Distracted by health and other issues, I only just came to realise this morning that the £30.12 paid weekly to my lender has stopped, that from somewhere in Cuckooland, I am supposed to find a replacement £130 a month, which most certainly will finish me off. I am still in recovery from major heart surgery, very tired, and now they have dumped this on me. I have no one to turn to, and the prospect of appealing is terrifying for me, as I have mental health issues too.
I’m not gay, but most surely have had enough, and thinking of doing a Dale Winton. After all, they do want me dead, so now, at age 71, my life in penury will not be worth living, so I may as well give them what they want.
Sara (Debt Camel) says
It is dreadful having to sort this sort of stuff out when you are ill, but I suggest you need to get to your local Citizens Advice as soon as possible to see if you should still be entitled to SMI and if not, what your options are.
Brian Caffrey says
I surely cannot be the only person to have received such a miserable letter, advising change to Savings Credit, having been advised that they no longer qualified for Guaranteed Pension Credit.
I had finally posted the loan application, duly signed, together with the legal charge document, also signed on March 16, and a few weeks ago, received formal acknowledgment, at which time I assumed that the new arrangement was in place, and ready for implementation.
I have however received no such mailing from the SMI loan department/ people, and now remain in weekend limbo torment.
Thus I have absolutely no idea what the Hell is going on.
Elsie says
Hello Sara,
I thought you might be interested to learn that not even a month has passed since the introduction of the SMI/LMI and our mortgage company is currently reviewing our mortgage with a view of taking us to court to get us out! We ran up arrears when my partner first became ill and our mortgage company gave us a payment holiday until the SMI started. The SMI didn’t meet our full subscription, so we made up the full mortgage subscription ourselves plus, initially, a token amount towards the arrears. Following advice, we’ve been paying off our arrears at the Norgren level (arrears settled in full by the end of our mortgage terrm). Our agreement is usually reviewed every 6 months and, after being put through the wringer, a payment plan is agreed. This time though, it seems from the calls so far, that due to the unknown amount that we will incur as the SMI loan/interest, the mortgage company intends to proceed to court as I turned an AVS down. Last year, the mortgage company turned down a grant that needed a non-financial charge too!
Sara (Debt Camel) says
which mortgage lender is this?
I think you need to talk to the debt adviser/solicitor that helped you get the Norgan repayment agreed as to what your options are.
Elsie says
Hello Sara,
Thanks for your reply. I’m working on professional advice and also seeing our MP. I’m reluctant to name the mortgage company just yet.
Sue Fletcher says
Hi Sara.
Some time ago I wrote that I had not heard anything from the DWP to say whether or not they had actually got my forms…as expected they said they had but could not tell me any more as there was a “backlog” but could not state how long this was. Well yesterday I had a letter from DWP to say that from 10th April they would no longer be taking money from my “allowance” to pay the mortgage to Halifax. It seems that after a phone call to Halifax (by me) that the money IS being paid direct to them from DWP – the fact they haven’t told me I have qualified for the loan seems to have gone by the by. Is this usual? Do they not tell you that you are getting the “loan”? I thought they might have notified me that everything was going through OK But perhaps I am hoping for a bit too much from them!
G Wallace says
If you are a shared ownership HA tenant, the HA does not allow loans to be secured against home???
Sara (Debt Camel) says
I’m going to tell you what I think will happen here, but I am not an expert in housing law and I suggest you call Shelter’s very good housing helpline: https://england.shelter.org.uk/get_help to discuss this.
There is a provision in the SMI rules (paragraph 7.19 in http://www.legislation.gov.uk/uksi/2017/725/pdfs/uksiem_20170725_en.pdf) that where there is another owner of the property (the Housing Association in this case) a charge won’t be used but you will be asked to sign “an equitable charge” instead. The HA doesn’t (I think) have to agree to this. The end result for you will be much the same as a charge would have been.
Sue Fletcher says
Hi Sara
Good news – I have FINALLY received my letter confirming the SMI loan WILL be paid (direct to the lender) but only after I had to get on to my Mortgage lender (yesterday)….funny that eh? Still at least I now know for definite where I stand debt wise. Thanks for the advice you give, not only to me but everyone on here. X
B Caffrey says
hello Sue
For precisely the same reason that the Pension Service’s letter had been very unclear, and because of concern whether I possibly no longer qualified for a loan (because of the careless ambiguity of their words,) I was in torment from Saturday morning until Monday morning, when I was finally able to make contact with the Pension Service. So, the loan payments will be forthcoming
With rubbish rates of pay, it seems that the Pension Service cannot afford to engage articulate people. Their last pair of letters both bore incorrect telephone numbers
Harry says
I know it’s slightly off thread but if as result of losing SMI and being changed to the loan scheme you have lost Pension Guarantee Credit and moved to Pension Savings Credit you may be aware that you’ve lost the benefits that you were previously entitled too. However, please note that it is open to you to apply to your Council for Council Tax Support and to the NHS for help with health costs on form HC1. If you have “low Income” you may still get some help.
RMD777 says
Reply ref. Harry.
Hi,
Are you saying SMI is being automatically replaced by LMI? And this causes Benefits to change? I am not of pensioner age if that makes a difference. If I was are you saying you lose Council Tax & health cost support?
Thank you,
Russ.
Sharon says
Just wondering about a scenario….
I have accepted the loan and it has started paying towards my mortgage interest now.
If I were to move into my partner’s home, but keep the flat going and possibly rent it out for while, would I still be able to continue with the loan until I sold the property? I would no longer be in receipt of ESA if I were to move into my partner’s property. But as it is now a loan rather than a benefit, I can’t see why I wouldn’t be entitled to continue with it? In fact I would’ve thought it would be in the DWP’s interest to continue with it…
The person I spoke with at the DWP wasn’t entirely sure!
Sara (Debt Camel) says
Well obviously you wouldn’t get any more SMI loan payments in that situation. But I don’t think you would be obliged to repay the SMI loan, although that might well be sensible as you would have to get permission from your mortgage lender to let out a property – that may be less likely if there is another secured loan on it.
Poppy says
Will we get notice when SMI kicks in as I have heard nothing back from anyone?
Cathy says
They have continued to pay my mortgage lender from April 9th.at the same rate as before without letting me know. However I received a letter today May 10th from Dwp informing me of this, they say a separate letter is to follow explaining the interest rates.
I would advise you check with your mortgage lender !
Lynn Jones says
I have been getting SMI it a joint mortgage I have moved out on trial separating would my partner be able to get it in his name or could I carry on getting in my name were both unemployed
Sara (Debt Camel) says
It sounds as though your partner is likely to qualify for SMI. You will presumably need help with your housing costs from Housing benefit or universal credit – I suggest you both go to your local Citizens Advice and they will look at both your benefit options.
gmack says
finally received the letter and booklet from dwp asking that i provide them with a phone number so they can give it to serco and obviously keep a record of it for themselves and my question is as follows, is it mandatory to give the dwp a contact number so they can pass it on to serco or can i just do nothing as do not require one of their loans
Sara (Debt Camel) says
If you don’t want a loan to replace the SMI then you don’t have to give a contact number. Do you have another plan for how to manage without the SMI?
gmack says
At the moment it’s only £12pw so the plan is do nowt
Elizabeth Glover says
I have been moved to SMI loan scheme and was on Income support ESA support group and receive a small Occupation pension. Now I find out because the Help with interest SMI, my ESA has been converted to contribution based and I loose council tax benefit, free prescriptions and NHS costs. All because of this new change to loan….. It puts me in a position that contributions based worked out slightly more a week. I am so much worse off I have disability so my prescriptions amount to 14 a month, I have abdomen tooth so can’t afford the dentist and my eye test is due dam dam this conservative government . I just read that if you are on contribution based ESa you are not entitled to SMI does this mean the loan stops.?
Sara (Debt Camel) says
Hi Elizabeth,
I think you need to talk to someone about your benefit situation and what your options are – I suggest your local Citizens Advice. I am not sure how you can have been moved to contributions based ESA.
Ja1234 says
Hello Sara,
I applied for the lmi about 4 weeks ago, I’m still to hear back. I’m assuming that I will be entitled to it as I’m on income support, a career and receive child tax credits.
My partner has just moved in, he is not claiming benefits and though he is employed through his own company he is unable to work and signed off sick (he did work for 3 weeks back in April but that is the only work he has been able to do since the end of January).
Will I still be entitled to receive lmi?
Sara (Debt Camel) says
I can’t advise how your income support may be affected by him moving in. Sorry but I think you both need some benefit advice – go to your local Citizens Advice.