Covid: Banks call for overhaul of mortgage support

Banks and building societies want ministers to extend help for those struggling to pay their mortgage owing to the financial effects of Covid.

Support for Mortgage Interest (SMI) is a loan available to some people in the UK on benefits, which is usually repaid when their property is sold.

Applicants have to wait for 39 weeks after losing their job before they are able to make a claim.

Banks want the wait to cut to 13 weeks, as happened after the financial crisis.

The government said that anyone struggling to pay their mortgage should first go to their lender, who has a duty to support them.

What is Support for Mortgage Interest?

People who are not working can receive SMI to help with the interest payments on their mortgage.

For 70 years it was paid as a benefit which didn't have to be repaid. In 2018, the government switched SMI to become a loan. It is usually repaid (with interest) when the owner's home is sold, often on their death.

The change from SMI from a benefit to a loan was controversial. Yet, it remains a common form of support, particularly for the long-term unemployed.

The eligibility criteria include a maximum mortgage of £200,000 for working-age claimants, or £100,000 for pensioners. It is paid directly to their lender, and can be used for anyone, even if they have a poor credit history.

Claimants need to be on one of a range of benefits including jobseeker's allowance or universal credit.

What do lenders say is needed?

Two key issues exist. The first is that a claim for SMI can only be paid after receiving benefits such as jobseeker's allowance for 39 weeks in a row, or after receiving universal credit for nine months in a row, without any breaks.

Banks and building societies say that is far too long a wait, as many homeowners would be in trouble with mortgage repayments much sooner after losing their jobs. The pandemic also means the risk of job losses is greater.

So, they are calling on the government to reduce the waiting time to 13 weeks, as was done for seven years following the financial crisis of 2008-9.

Charles Roe, director of mortgages at banking trade body UK Finance, said: "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."

The second issue is that those on universal credit cannot claim SMI if they have been in any kind of paid work. Taking just a few hours of work would set the clock back to the start of the nine-month wait.

Lenders want the rules changed so people can work up to 16 hours a week without it affecting their SMI claim.

"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," said Paul Broadhead, head of mortgage and housing policy at the Building Societies Association.

What does the government say?

A spokesman for the Department for Work and Pensions (DWP), which administers SMI, said: "This government is committed to supporting people through the pandemic and beyond, providing a strong financial safety net for those in need.

"That is why we have invested billions into additional welfare spending, offered mortgage holidays and we continue to provide loans for those on low incomes to help pay mortgage interest."

The DWP reminded banks and building societies that they had a duty to help struggling borrowers, and that anyone facing difficulties should go to their lender to see what support was available.

Lenders offered some payment breaks for those facing arrears during the pandemic, but have said these were only short-term solutions and were now being wound down. They argued that further extensions for those who have lost jobs would only extend payment arrears and not benefit borrowers.