UK Finance and the Building Societies Association are calling on the government to slash the wait time for borrowers who need to claim Support for Mortgage Interest from nine months to three,

The lender bodies also want policymakers to change the rules so that borrowers on Universal Credit can claim SMI if they are working reduced hours.

Currently, homeowners have to wait 39 weeks before they can receive the support, but the BSA and UK Finance want to see this window permanently reduced to 13 weeks as it was after the last financial crisis.

Under the existing zero-earnings rule, borrowers are barred from applying for SMI if they receive any income from work, but lenders want to see this changed in order to help those who have lost earnings after having their hours cut by their employer.

They argue that borrowers should still be allowed to work up to 16 hours per week and claim the support.

The lender groups point out that SMI is a loan and not a benefit, meaning that these changes would have a very limited impact on the public purse, but could have a huge benefit for struggling households.

Lenders say that early intervention could help to prevent borrowers’ financial situation from deteriorating irreversibly, as Covid support schemes such as mortgage payment holidays are phased out.

Recent research by the Social Market Foundation suggests that only 30 per cent of households have enough savings to pay their mortgage for two months,

This means homeowners could accrue more than six months arrears before receiving help from SMI, making it significantly harder to manage and resolve their financial difficulties.

The English Housing Survey found that 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 for 34 per cent and working fewer hours for 31 per cent.

BSA head of mortgage and housing policy Paul Broadhead says: “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.”

UK Finance director of mortgages Charles Roe says: “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.”