Mortgage lenders have warned that the mortgage interest support program needs “critical” changes to help hundreds of thousands of households avoid arrears due to the pandemic fallout.
The SMI is a loan issued by the Department of Work and Pensions to help eligible homeowners pay the interest on their mortgage. Applicants are generally required to receive certain benefits, such as the Jobseeker’s Allowance, and the loan will then pay interest on mortgages up to £ 200,000.
But homeowners currently have to wait 39 weeks after losing their jobs before they can file a claim. Many people who lost their jobs during the height of the pandemic are not yet eligible to make a claim. UK Finance and the Building Societies Association, two commercial banking organizations, have requested that this period be reduced to 13 weeks.
Lenders have warned that the current wait time could mean borrowers accumulate more than six months in arrears before receiving assistance under the program.
Paul Broadhead, of the BSA, said repossessions would become a reality for many if steps were not taken to protect homeowners once other Covid support programs, such as leave, ended .
“To help struggling homeowners adjust to their new normal, changes to the SMI system are needed now.
“Reducing the wait time and making the program more flexible would not only provide a compassionate response to those financially affected by the pandemic, it should not have a long-term impact on government spending,” he said. .
SMI is structured as a loan, not a benefit, and must be repaid with interest when the home is sold or transferred to another owner.
The interest rate at which the SMI amount is currently calculated is 2.09 pc, but support will only be offered on the first £ 100,000 of a mortgage if the borrower also receives a pension credit.
Charles Roe, UK Finance, warned that the current wait time for the SMI is preventing struggling homeowners from receiving “much needed help” before mortgage arrears start to pile up.
He added: “We call on the government to urgently review the eligibility criteria of the SMI program to ensure that those who are struggling with payments do not wait more than nine months before they can access this support. “.
After the 2008 financial crisis, the wait time for the SMI was 13 weeks, but in 2016 it was extended to 39 weeks.
UK Finance and the BSA have also called on the government to extend the SMI to homeowners with reduced income. The lenders have requested that applicants be able to work up to 16 hours per week without affecting their eligibility.
A DWP spokesperson said: “This government is committed to supporting people during the pandemic and beyond, by providing a strong financial safety net for those in need.
“That’s why we’ve invested billions in additional welfare spending, offered mortgage holidays, and we continue to provide loans to low-income people to help pay mortgage interest. ”