Support for Mortgage Interest (SMI) helps some people with the cost of their mortgage if they aren’t working.
Since 2018 this help has been paid as a loan secured on your house, not a benefit, see the gov.uk page on SMI.
But this loan is cheap, you don’t have to make any repayments to it until the house is sold and it does not show on your credit record, so this is not as bad as it sounds.
How much help does SMI give?
If you lose your job, you can’t claim SMI for 13 weeks if you claim Universal Credit – this used to be 39 weeks but it was reduced in April 2023. If you retire and get Pension Credit, it is paid immediately.
The help SMI gives will probably be less than your monthly mortgage payments:
- SMI only helps with the interest you pay on your mortgage not the capital repayments.
- 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.
- The amount of SMI you are paid depends not on your mortgage rate but on the average interest rate for mortgages. In mis 2023 this is 2.65%. If you are paying a much higher interest rate, you will get a lot less help than the amount you are charged each month.
So SMI is not a very helpful benefit – too little and too late!
But if you can’t pay the mortgage, even a little help can be better than nothing. So you should seriously look at taking SMI, even though it is only a loan.
How the SMI loan works
How the loan is calculated
Each month the loan will increase by the amount that the government is paying to your mortgage provider.
There is no credit check for this SMI loan, so you won’t be refused even if you could not remortgage as you have a bad credit record.
The governement adds interest to this loan. This is charged at the OBR’s forecast of the gilt rate – this is the rate the government can borrow money at. In mid 2023 this is 3.28%.
Repaying the loan
You don’t have to make any repayments to this loan.
This applies even if your finances improve, for example if you return to work. At that point, SMI will stop, but you don’t have to make any payments to the loan you have already been given.
The SMI loan doesn’t appear on your credit record. As a result, not making any payments will not harm your credit score.
The loan will be repayable when your house is sold, transferred to someone else, or on death.
If there isn’t enough money to repay the loan, the rest will be written off. This loan cannot become a problem for you if you sell your house or for your your children after you die.
But if you want, you can repay the loan, or part of it, at any time, with a minimum repayment of £100.
To accept the SMI loan offer
The DWP is offering this loan to you. The legal terms for the loan arrangements are described in this document.
To accept the offer, you have to sign the loan agreement and a charge form. If the house is jointly owned and you live together, your partner also has to sign.
The charge will then be registered at the Land Registry.
Should you agree to take the loan?
A lot of people find the idea of getting a loan to pay their mortgage very worrying. “It’s not right to get new debt to pay off other debts” is a common comment.
As I debt adviser I would normally agree! But this SMI loan is very unusual because it is cheap and you don’t have to make any repayments to it. So you need to think about your situation and make a practical decision.
You may hate the idea. But this SMI loan is a good option for most people who can’t pay the mortgage for five reasons:
- it is much cheaper than borrowing elsewhere;
- you don’t have a job so you probably can’t remortgage;
- if you don’t take the loan and mortgage arrears will accumulate, your house may be repossessed;
- you don’t have to make any repayments to this loan, even if you start work;
- it can’t harm your credit record.
Do you have a better option?
Do you have savings you can use? Most people don’t have much or they wouldn’t be able to claim Universal Credit or Housing Benefit.
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.
Could relatives help you out? Don’t let them borrow money to help you – this SMI loan is massively cheaper than they could borrow at and they would have to make repayments, you don’t with the SMI 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.
If you are unsure, go to your local Citizens Advice. They can help you look at the details of this loan and at the rest of your situation:
- for some people there may be other benefits you could claim;
- there may be better options for handling any non-mortgage debts you have.