The Building Societies Association (BSA) and UK Finance say ‘critical changes’ must be made to the Support for Mortgage Interest (SMI) scheme to ensure hundreds of thousands of households get help before their financial situation worsens
Currently, struggling homeowners must wait 39 weeks to claim SMI, which could make their financial situation worse.
In a bid to remedy this, UK Finance and the BSA are asking the government for two key changes – one of which is to permanently reduce the waiting time to 13 weeks.
They have also asked the government to allow people on Universal Credit to claim SMI if they are working reduced hours.
Charles Roe, director of mortgages at UK Finance said: “The wait time and eligibility criteria for SMI 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.”
Reducing the SMI waiting time
There are concerns with emergency Covid-19 support through mortgage payment deferrals due to end soon, SMI is likely to become more vital than ever before.
What’s more, recent research from the Social Market Foundation suggests just 30% 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.
As such, UK Finance and the BSA have warned, homeowners could accumulate more than six months arrears before they receive much-needed support. This could, in turn, make it significantly harder to manage and resolve their financial difficulties.
The organisations believe, the government could solve this by introducing changes which permanently reduce the SMI wait time to 13 weeks, as it was after the last financial crisis.
Extend support to homeowners on reduced income
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.
Furlough and reduced hours have made it harder for around one in ten people to make their mortgage repayments. Therefore, the BSA and UK Finance want 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, the two organisations said.
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.”
