Banks and building societies are calling on ministers to overhaul mortgage support in a bid to help UK homeowners who have been struggling to pay their mortgage due to the pandemic.
They are urging the UK government to reduce the wait time for the Support for Mortgage Interest (SMI) loan, which is available to people on benefits.
At the moment, applicants must wait 39 weeks after losing their job before they are able to make a claim, or after receiving universal credit for nine consecutive months.
However, banks are pushing for this to be cut to 13 weeks, echoing a move that took place after the financial crisis, as the pandemic has increased the risk of job losses. After the financial crash, the 13 week wait time stayed in place for seven years.
SMI supports people who are out of work with help towards the interest payments on their mortgage. For 70 years, it was previously issued as a benefit which didn't have to be paid back, however, in 2018 the government controversially changed it to become a loan.
The loan now has to be repaid when the owner sells their home or transfers the ownership (unless the loan moves to another property).
SMI cannot be used towards the amount homeowners borrow, nor can it be used towards insurance policies or missed mortgage payments.
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"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,” Charles Roe, director of mortgages at banking trade body UK Finance, said.
“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.”
To be eligible for a Support for Mortgage Interest loan, you usually need to be getting one of the following qualifying benefits: income support, income-based jobseeker’s allowance (JSA), income-related employment and support allowance (ESA), universal credit or pension credit.
However, those on universal credit cannot claim SMI if they have been paid for any form of work. Taking on just a few hours of work would reset the clock to the start of the nine-month wait.
Lenders are calling for the rules to be changed so people can work up to a maximum of 16 hours a week without it affecting their 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.
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."
Recent research by the Social Market Foundation revealed that only 30% of households have enough savings to pay their mortgage for two months thanks to the onslaught of COVID-19.
This means that homeowners could accrue more than six months arrears before receiving help from SMI, making it more difficult to manage their finances.
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