SMI is a government loan scheme which helps homeowners who are in receipt of benefits.
As it stands, these homeowners must wait 39 weeks to claim, during which UK Finance and the BSA warned their financial situation may worsen to the point that they are unable to remain in their home.
With furlough two weeks away from closing, the firms have called for two key changes from government.
The first is to reduce the wait time for accessing SMI from 39 weeks to 13, while the second is to allow people on Universal Credit (UC) to claim SMI if they are working on reduced hours.
As SMI is a loan and not a benefit, UK Finance and the BSA said that these changes will have a limited impact on the government purse.
Mortgage lenders have provided over 2.9 million mortgage payment deferrals to help homeowners during the pandemic.
However, whilst lenders will continue to support those still struggling, some homeowners will also benefit from SMI.
Paul Broadhead, head of mortgage and housing policy at the BSA, said: “With the end of the furlough scheme only days away, 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, said: “With furlough ending on 1 October 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.”
