Support for Mortgage Interest (SMI) helps people with the cost of their mortgage if they aren’t working.
It was paid as a benefit from 1948, but in 2018 this stopped.
SMI is now only given as a loan that is secured on your house, see the gov.uk page on SMI.
How much help does SMI give?
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. The Covid-19 mortgage breaks have helped many people in 2020, but they were limited to just 6 months.
The help SMI gives will probably be less than your monthly mortgage payments for three reasons:
- 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.
- SMI is calculated based on the average interest rate for new mortgages. In early 2021 this was 2.61%. But you may be paying a much higher interest rate. This is unfair – as you aren’t working you can’t remortgage onto good rate new deals.
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.
How the 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 plus the interest added
Interest will be charged on the loan at the OBR’s forecast of the gilt rate – this is the rate the government can borrow money at so it is very low compared to normal loan and mortgage rates. In early 2021 this is 0.3%.
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 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, so this can’t become a problem for you if you sell your house or 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.
There is no credit check for this loan, so you won’t be refused even if you could not remortgage as you have a bad credit record. The loan will also not appear on your credit record.
To accept the loan offer
The legal terms for the loan arrangements are described in this document.
To accept the offer, you will need 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.
And as I debt adviser I would normally agree! But this SMI loan is very unusual – 0.3% is VERY 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.
It’s a cheap loan – is it a problem?
You may hate the idea. But in practice 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.
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.
Media coverage of SMI becoming a loan in 2018
Anger as thousands unaware they face a ‘second mortgage’ (Guardian 5 February 2018)
Radio 4 Moneybox (17 March 2018) with the DWP minister – and me!
Major mortgage benefit is being axed – and thousands of people STILL haven’t been told on the phone (Mirror 19 June 2018)
This article was updated in February 2021