UK Finance and the Building Societies Association (BSA) are calling for further help for those struggling to pay their mortgage due to the financial effects of the Covid-19 pandemic.

The organisations are calling for changes to Support for Mortgage Interest (SMI) which is currently offered to help homeowners to avoid their financial situation deteriorating by getting help sooner.

As it stands, struggling homeowners are left to wait 39 weeks to claim SMI, which could make their financial situation worse. The Building Societies Association and UK Finance are calling for changes to SMI to help these homeowners to avoid their financial situation deteriorating by getting help sooner.

Asking the government for two key changes:

  • Permanently reduce the wait time to access SMI from 39 weeks to 13 weeks – to make sure help is given when people need it most
  • Allow people on Universal Credit to claim SMI if they are working reduced hours

SMI is a loan and not a benefit, meaning that changes will have a very limited impact on the government purse but have a huge impact on the households that will benefit.

Mortgage lenders have provided over 2.75 million mortgage payment deferrals to help homeowners who were struggling because of Covid-19.  However, emergency support measures are coming to an end and although lenders have other forbearance measures available to help those still struggling, SMI is a vital support option.

Recent research suggests that only 30 per cent of households have enough savings to pay their mortgage for two months, but the wait time for those eligible to claim SMI is currently nine months. This means homeowners could accumulate more than six months arrears before they receive much-needed support making it significantly harder to manage and resolve their financial difficulties.

Lenders are calling on the government to bring in changes which permanently reduce the SMI wait time to 13 weeks, as it was after the last financial crisis. For someone who lost their job during lockdown and is struggling to make ends meet, this change could make a real difference to their financial circumstances.

People must receive benefits such as Job Seekers Allowance (JSA) or Universal Credit (UC) to be eligible for SMI. But as people move from JSA to UC the zero-earnings rule means they are no longer able to get SMI if they receive any income from work.

One in ten homeowners said it was difficult to keep up mortgage payments in the last year, with the top reasons including being furloughed or on reduced pay (34 per cent) and working fewer hours (31 per cent).

The call is for the zero-earnings rule to be removed from the SMI eligibility criteria, so that people can work up to 16 hours a week without it affecting their SMI claim. In addition, as SMI is a loan not a benefit, it does not need to be treated like other UC payments.

Charles Roe, Director of Mortgages at UK Finance said “The wait time and eligibility criteria for Support for Mortgage Interest is preventing much-needed help going to struggling homeowners when they need it most – before their financial circumstances get worse and mortgage arrears start building up. We are calling on the government to urgently review the SMI scheme eligibility criteria to ensure those struggling with payments are not waiting over nine months before they can access this support.”

Paul Broadhead, Head of Mortgage and Housing Policy at the BSA said “Lenders, government and regulators have collaborated well during the Covid-19 pandemic to ensure support has been available to mortgage holders who have experienced financial difficulties. However, as the end of these schemes is now in sight and unemployment looks set to rise sharply, without some further action the risk of home repossession could become a reality for many families and individuals despite the best efforts of lenders.”

“To support struggling homeowners as they adjust to their new normal, modifications to the Support for Mortgage Interest scheme are needed now. With SMI already restructured as a loan rather than a benefit, reducing the wait time and making the scheme more flexible would not only provide a compassionate response to those financially impacted as a result of the pandemic, it shouldn’t have a long-term impact on government expenditure.”

“Without the reforms we are recommending, 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.”