Housing Rights recommends changes to Support for Mortgage Interest loans

In January, the Financial Conduct Authority published guidance requiring lenders not to enforce possession against homeowners until 1 April 2021. Whilst this temporary suspension of enforced possessions is a welcome safety net, Housing Rights fears that the availability of mortgage holidays has masked some serious affordability problems amongst homeowners during the COVID-19 pandemic. Struggling homeowners are likely to face increasing difficulties in the coming months with the end of furlough.

Covid-19 impact on homeowners 

The threat of an economic downturn is a particular concern for homeowners in Northern Ireland. Marginal homeownership and negative equity are common issues. In comparison to the rest of the UK, Joseph Rowntree’s 2018 research showed:

• NI has a greater proportion of homeowners in poverty 
• Twice as many NI homeowners are behind with their mortgage payments 
• NI households with mortgages had more than 3 times the incidence of negative equity

With COVID-19 job loss and income reduction, homeowners are facing even more uncertainty and are entitled to minimal assistance with their housing costs should they need to claim benefits. The government must provide more help to stop homeowners falling off a cliff edge once forbearance and mortgage holidays end. 

Support for Mortgage Interest 

The government provides help for homeowners through Support for Mortgage Interest (SMI). This is a payment towards the interest costs of a mortgage that can be given to homeowners who are in receipt of certain qualifying benefits. The SMI scheme has undergone significant changes in the past 7 years, which limit its ability to provide meaningful assistance to struggling homeowners. Some of the most impactful changes are

• changing SMI from a benefit to an interest-bearing loan, which must be repaid when the property is sold or ownership is otherwise transferred,
• limiting access to SMI so that people in receipt of Universal Credit cannot receive this benefit if they have any earned income, 
• requiring that claimants serve a 39 week or 9 month waiting period before they become eligible for the loan payments, despite this waiting period being reduced to 13 weeks in previous periods of economic turmoil

The financial impact of COVID-19 has exposed the vulnerabilities of homeowners. These changes have seriously frayed the benefits safety net for homeowners, putting those who are experiencing problems paying their mortgage at very real risk of homelessness.

Housing Rights’ proposals to help homeowners 

We believe that essential reforms must be made to SMI if it is to be of any real assistance to struggling homeowners. 

Re-instate SMI as a non-repayable grant

As payments are made towards the interest of a homeowner's loan, and not the capital element of any mortgage, we believe it is appropriate to pay these in the same way as benefits to assist with rent and rates, i.e as a grant and not an interest-bearing loan. 

Reduce or remove the waiting period

In our experience, homeowners may have already built up unmanageable levels of mortgage debt by the time they become eligible for SMI 9 months after they first apply for benefits. Lenders dealing with homeowners who are struggling because of the impacts of COVID-19 will likely have already offered these customers up ot 6 months of forebearance. They may not be willing to wait any longer before proceeding to legal action. If a waiting period is necessary, we recommend that it does not exceed 13 weeks, the waiting period that was deemed appropriate in response to the 2008 financial crisis. 

Allow working households in receipt of Universal Credit to claim Support for Mortgage Interest

Universal Credit is intended to support people into work, and it seems absurd that taking on paid employment completely ends a person's entitlement to receive help with their mortgage interest costs, regardless of the hours they work or the income they receive from work. Added to this, there is no linking period for waiting times, so a homeowner on Universal Credit who is lucky enough to find a job in this current climate will have to serve a fresh 9 month waiting period if they are then let go by their employer before their help with housing costs will resume. 

People in receipt of legacy benefits can work up to 16 hours per week while continuing to claim SMI. If the government wants to ensure that work pays, it should allow people to work and continue to claim help with their mortgage interest costs under similar rules to those which apply to renters. 

An application for SMI should trigger a referral to independent housing and debt advice

Housing Rights worked tirelessly during the last recession to safe homeowners from repossession. Although our maxim has always been that it is never too late to get advice, a person in debt will generally have much more options if they get advice earlier, rather than later. Setting up automatic referral systems would add a layer of protection for many struggling homeowners, and have a knock-on effect on repossession rates and homelessness.