Support for Mortgage Interest – usually foreshortened to SMI – is a fairly new Government-sponsored initiative that is aimed at supporting some of the burden of repayment, in the form of financial aid.
Designed to help those most in need and receiving benefits, the UK Government website states that “If you’re a homeowner getting certain income-related benefits you might be able to get help towards interest payments on your mortgage and loans you’ve taken out for certain repairs and improvements to your home.” This means that people and families on certain benefits, including job seekers allowance (JSA) and employment & support allowance (ESA) can apply to have extra help to pay elements of a mortgage they may own. Typically, this means that people who are on these benefits and struggling to pay their mortgage, and therefore possibly facing eviction, can seek help with interest payments on their loan.
When it was introduced, the notion behind SMI was to help alleviate the pressure on homeowners who could be under threat of eviction and required extra help from the Government in the form of short term emergency accommodation and extra benefits. There have been a number of people who have benefitted from this arrangement and many families have been able to stay in their own homes because of it. But in terms of benefits, SMI has been only a low spend – around £300 million per year since it was introduced – however it is being changed to further reduce the enormous national benefits bill. The two changes that will affect future claimants are:
- SMI is switching from a fully-paid benefit to a repayable loan. From 2018 it will move from being a state benefit to a state-backed repayable loan. The Government will supply those needing help with finance to pay their mortgage interest, but a charge will be placed on the recipient’s mortgage. The homeowner – or mortgage owner, as appropriate – will be expected to repay the amount that they have received either when they get back into work or when their home is sold. Furthermore, the repayment will be subject to interest which will be charged with an interest set at the ‘forecast gilt rate’, which is currently 1.7 per cent – although it could rise at any point.
- The waiting period for benefits claimants is set to increase. Currently a potential recipient has to be receiving the appropriate benefits for 16 weeks continuously before they become eligible for SMI, but this will now change to 39 weeks (approaching nine months) before it will be paid.
Groups supporting those in vulnerable positions have responded angrily to these changes and believe that they will have significant ramifications for many struggling homeowners. The original waiting period for SMI has been credited with helping vulnerable people and families to stay in their homes. As the economy tightens, an increasing number of people are likely to feel the need for extra help, but with the Government changing the rules that safety net is likely to be removed.
Of course, it is understood that people shouldn’t be living off benefits, and a repayment seems reasonable, but the attendant increase in the eligibility period is seen as short-sighted and likely to impact many people adversely.
If you feel that the government changes would adversely affect your ability to continue making mortgage payments, our insurance protection options can help to provide an adequate level of cover. Speak to one of our protection consultants by calling us on 01604 877999.