If you lose your job or you’re too ill to work, or if you’re on a low income, covering your mortgage costs could become a real struggle.
Find out about state help with mortgage payments if you’re unemployed or ill.
State help with mortgage payments
At the moment, if you’re unemployed, too ill to work or you’re on a low income in retirement, you may qualify for state help towards your mortgage. It’s called support for mortgage interest (SMI).
Government figures show that in 2016, 124,000 people received support for mortgage interest. Over half of these (52%) were receiving pensioners and 48% were of working age.
Support for mortgage interest:
- Is not paid for the first 39 weeks that you’re receiving benefits, unless that benefit is Pension Credit.
- Is paid direct to your mortgage lender.
- Only covers the interest part of the mortgage. If you’re on a repayment mortgage (otherwise known as ‘capital and interest’), the part of your mortgage payments that repay the capital you borrowed won’t be covered. It also cannot be used to cover the cost of any insurance policies or for mortgage arrears.
- Covers mortgage interest on loans up to £200,000 if you’re claiming an out of work or disability benefit. However, it only covers mortgage interest on the first £100,000 of a mortgage or loan if you’re claiming Pension Credit or if you started claiming another benefit that entitles you to support for mortgage interest before 2009. There is an exception to the £100,000 limit if you’re claiming Pension Credit, and that’s if you are already getting support for mortgage interest and move to Pension Credit within 12 weeks of stopping claiming other benefits. In that case, you’ll still be able to get SMI on the first £200,000 of your mortgage.
- Is paid assuming that the interest rate you’re charged is 2.61% If you pay more than 2.61%, you won’t get any extra help and you will be left with a shortfall on your mortgage interest payments. Although it’s possible to get competitive mortgage deals at or below 2.61%, anyone who has an older mortgage, or who’s on their mortgage lender’s standard variable rate is likely to pay much more.
- Used to be paid as a benefit, but will be available as a loan from 5 April 2018. However, it’s already being paid as a loan if you’ve started receiving an out of work or disability benefit on or after 7 July, 2017. If you were paid an out of work or disability benefit before 7 July, 2017, support for mortgage interest will still be paid as a benefit until 5 April.
How will the support for mortgage interest loan work?
The support for mortgage interest loan will work in a similar way to a standard mortgage, in that it will be secured against your home. However, it will have to be paid back when you sell your home or when you die. If you have a partner, the loan does not have to be repaid until they die, if you die first.
If the loan is worth more than the remaining equity in the property, the outstanding balance will be written off. The debt won’t be passed onto your children or partner if there’s insufficient equity to repay it.
What’s the interest rate charged on an SMI loan?
The interest rate is not fixed, although it will not change more than twice a year – in January and July. It is linked to the interest rate that the government pays on gilts (the official term for UK government bonds). As I write this, the interest rate is 1.7%. This interest will build up on your SMI loan, unless you make payments towards it.
You can make payments towards the SMI loan at any time. The minimum you can pay is £100.
Moving from support for mortgage interest benefit to a loan
If you’ve been receiving support for mortgage interest as a benefit, you cannot automatically be switched over to an SMI loan. You have to agree to it. If you don’t agree to the loan, you won’t get any more state help towards your mortgage interest after 5 April..
If you’re currently getting SMI as a benefit, you should have received a letter telling you that you will only receive it as a loan from 5 April. However, it won’t automatically be converted from a benefit to a loan. You have to sign the paperwork to agree to it.
- You should have received a letter from the DWP telling you that your SMI benefit is being replaced by a loan from 5 April and that you have to agree to the loan before you’ll be switched over to it. The DWP has been sending out leaflets explaining how the loan will work, alongside the letter.
- Serco (a private sector company supplying government services) will call you to discuss the loan and to explain other options available. If you have a partner, they will also have to take part in the phone call. If you agree to the loan or if you’re undecided, Serco will send you a loan agreement and ‘charge’ form.
- If you own your property jointly, you must both agree to the SMI loan.