Does the Support for Mortgage Interest scheme need to change?

With the furlough scheme now having come to a close, what will happen to the many employees still receiving government support?

Industry bodies UK Finance and the Building Societies Association want the Support for Mortgage Interest (SMI) scheme to be changed to support struggling homeowners amid the closure of the furlough scheme.

SMI is a government loan scheme, helping homeowners who receive state benefits.

As it stands, SMI claimants must wait 39 weeks before they claim, during which time they may be unable to remain in their home due to financial hardship.

Thanks to the furlough scheme and other government financial support packages, millions of homeowners have been protected from significant financial hardship during the pandemic.

However, with the furlough scheme having come to a close at the end of September, UK Finance and the Building Societies Association wants the government to reduce the waiting period for SMI from 39 weeks to 13 weeks.

They also want the government to allow people on Universal Credit to claim SMI if they work on reduced hours.

Because SMI is a loan and not a benefit, these proposed changes would have a limited impact on government finances. Still, they would be a significant help to households under challenging times.

During the pandemic, mortgage lenders have provided more than 2.9 million mortgage payment deferrals to help struggling homeowners.

While mortgage lenders will continue to provide this support, some homeowners would also benefit from SMI on better terms.

Paul Broadhead, Head of Mortgage and Housing Policy at the BSA, said:

“With the end of the furlough scheme, there is a likelihood that unemployment will rise. Without urgent modification of the SMI scheme the risk of home repossession could become a reality for many despite the best efforts of lenders.

“Without the reforms, we expect more government funding will be required for the provision of housing benefits for former homeowners who were unable to get the financial support they needed, when they needed it.”

Charles Roe, Director of Mortgages at UK Finance said:

“The current wait time and eligibility criteria for SMI is preventing much-needed help going to struggling homeowners before their mortgage arrears start building up. As the furlough scheme comes to a close, we may see more people needing to use SMI. UK Finance and the BSA are calling on the government to urgently review the scheme’s eligibility criteria and reduce the existing wait time of over nine months.”

Jane Tully, director of external affairs and partnerships at the Money Advice Trust, the charity that runs National Debtline, said:

“With furlough ending and with many people facing the risk of unemployment and reduced hours, accessing support through Universal Credit and Support for Mortgage Interest will be crucial.

“However, for homeowners struggling to meet mortgage payments, the 39 week wait for help from SMI, risks the build-up of arrears and potential home repossession.

“Mortgage borrowers caught at the sharp end of the impact of Covid, need the Government to act now by reducing the wait for SMI to 13 weeks and changing the earnings rules under Universal Credit to ensure they can access the vital support they need.”