Think tank recommends changes to Support for Mortgage Interest

The Centre for Policy Studies, a centre-right thinktank, has recommended changes to Support for Mortgage Interest to ensure that homeowners don't face repossession as a result of job losses caused by the COVID-19 pandemic. 

The report, From SMI to Mortgage Support, suggests that reforms to the current method by which homeowners receive assistance with housing costs would not only protect people from homelessness, but would also be a more cost-effective way of dealing with the issue than the alternative, pointing out that "...it is much cheaper for the state to cover the costs of mortgage interest than to support someone via housing benefit."

What is Support for Mortgage Interest?

Support for Mortgage Interest, or SMI, is the main means by which homeowners can receive assistance with their mortgage costs. It is available to people who have been receiving a qualifying benefit for a specific amount of time. These benefits are:

• Income Support (IS),
• income-based Jobseeker's Allowance (JSA),
• income-related Employment and Support Allowance (ESA) 
• Pension Credit and
• Universal Credit. 

There are additional complexities for people in receipt of Universal Credit who require assistance with their housing costs. As with other benefits, people receiving Universal Credit must be in receipt of the benefit for a set period of time before they can receive help with their housing costs. For UC claimants this is 9 monthly assessment periods (39 weeks for weekly legacy benefits). However, the Universal Credit regulations also provide that a homeowner is not entitled to receive any assistance with their mortgage costs if they receive earned income during an assessment period. A lack of linking rules for UC claimants meant that a period of paid work will also reset the waiting period for a claimant who had previously received assistance with their mortgage through SMI and, once this work ends, the person will have to wait a further 9 months for assistance. 

The assistance paid to homeowners is paid in the form of a loan, rather than a benefit. This loan accrues interest. Recipients do not have to pay back the loan in instalments, but the amount owed, plus interest, is added as a charge to the property. This means that the debt must be cleared if the property is sold or ownership of the property is transferred. 

CPS recommendations for the reform of SMI

The Centre for Policy Studies recommends

• the nine-month waiting period for SMI should be abolished;

• the first three months of SMI should be paid as a grant, not a loan;

• Government should allow people to claim SMI while moving into work, as with other benefits;

• lenders should make people who are at risk of losing their homes aware of this scheme automatically;

• to ensure that people do not remain in homes they cannot afford in the long term, SMI should be time-limited for claimants who are able to work and are not receiving a disability-related benefit.

Housing Rights has also recommended that the waiting period for SMI should be reduced from 39 weeks/9 months. There is precedence for such an intervention. The Labour Government reduced the waiting time to 13 weeks from January 2009 in response to the global financial crisis, and the longer waiting period was only reinstated in April 2016. Housing Rights also firmly supports reinstating SMI as a non-repayable benefit.