Banks are calling on the Government to be ‘compassionate’ towards homeowners unable to pay their mortgage due to the pandemic, by expanding its loan scheme for those in difficulty.
UK Finance and the Association of Building Societies, which act as the collective voice for hundreds of UK lenders, have said the Support for Mortgage Interest scheme, which loans people money to pay their mortgage, must be reviewed.
If it isn’t, they say that ‘the risk of home repossession could become a reality for many families and individuals,’ as support schemes such as furlough begin to wind down.
The Support for Mortgage Interest scheme can help borrowers struggling with monthly interest payments – but only if they have been receiving benefits for 39 weeks
They want to see the mandatory waiting period to access the scheme slashed from 39 weeks to 13, which they said would help homeowners to ‘avoid their financial situation deteriorating by getting help sooner.’
The waiting time was previously reduced to 13 weeks after the global financial crisis, when many people found themselves struggling financially.
‘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,’ their statement said.
The organisations also want people receiving Universal Credit to be able to get the loan if they are working on reduced hours.
People must be receiving either Universal Credit or Job Seekers’ Allowance in order to claim the loan, and at the moment they must also have zero earnings.
But the proposed rule change would mean they could work up to 16 hours per week without it affecting their claim.
Support for Mortgage Interest: Who qualifies?
Support for Mortgage Interest is a Government loan available to people who receive:
- Income Support
- Income-based Jobseeker’s Allowance
- Income-related Employment and Support Allowance
- Universal Credit
- Pension Credit
Those receiving Income Support, income-based JSA or income-based ESA can’t get an SMI loan until they have been claiming it for 39 weeks in a row.
Those receiving Universal Credit will need to have claimed it for 9 months in a row, and must not be working, even part-time.
Receiving a tax refund, or statutory sick pay, maternity pay, paternity pay, adoption pay or shared parental pay will also disqualify you.
The Government says you might still be able to get a n SMI loan if you apply for one of the qualifying benefits, but cannot get it because your income is too high.
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.’
Many borrowers affected by the pandemic have been able to arrange mortgage holidays with their lender, but applications for new pandemic-related mortgage holidays were closed in April. A total of 2.7million people took advantage.
The furlough scheme, which has supported some borrowers to continue making mortgage payments, is due to come to a close at the end of September.
The latest provisional Government figures suggested that 4.2million jobs were on furlough as of 31 March.
Charles Roe, director of mortgages at UK Finance added: ‘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.’
‘Without some further action, the risk of home repossession could become a reality for many families,’ says Paul Broadhead, head of mortgages at the Building Societies Association
How Support for Mortgage Interest works
SMI used to be a non-repayable benefit, but it is now a loan which must be paid back.
The payment you receive will only cover your mortgage interest, not the amount you borrowed or any arrears.
Borrowers need to repay with interest when you sell or transfer ownership of your home, although the loan can be moved to another property.
The Government cannot force you to sell your home in order to repay the loan.
The interest you pay can go up or down, but the rate will not change more than twice a year. The current rate is 0.3 per cent.
You will repay the SMI loan from what’s left after you pay off your mortgage and any loans secured against your home.
If you do not have enough left to pay off all of the SMI loan, the rest of the loan will be written off.
What support is available for those still struggling with mortgage payments?
For borrowers who don’t currently qualify for the SMI scheme, there are other options.
The Government-mandated mortgage holiday scheme has now closed, and mortgage holidays that are currently active will only run until the end of July.
Lenders will have their own individual processes for those in financial difficulty, though, so you can still ask your bank or building society to defer your payments. It doesn’t matter whether you have already taken a mortgage holiday.
However, lenders are no longer obliged to agree, and may carry out stricter checks before offering one.
Unlike the former scheme, these payment holidays might also affect your credit rating.
If this is the case, your lender should be clear about whether any new support you take on will affect your credit file, and give you time to assess your options.
Housing and financial advice charities such as Shelter, Stepchange, the Money Advice Service and Citizens’ Advice can provide guidance on what borrowers’ options are.
Speaking to an independent mortgage broker may also help you to assess your situation, and most don’t charge fees to borrowers.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: ‘The amount of savings in the bank for the age range where most jobs were furloughed is a pot of just over £3,500.
‘When you consider the average mortgage payment, it won’t be long before those savings pots have been utilised.
‘The cut in waiting time to claim SMI from 39 weeks would therefore be extremely welcome. It would enable action to be taken earlier, before the borrower ends up further in arrears and it is harder for the downwards spiral to be corrected.
‘Anyone struggling with their mortgage payments or worried that they might soon find themselves in this position shouldn’t delay in contacting their lender. It is always better to keep your lender in the loop and there are a number of options that can be tailored to your particular circumstances.’
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