SMI

Under the Support for Mortgage Interest (SMI) scheme, the Government makes interest payments on the first £200,000 of outstanding mortgages for those who can’t afford it. This is normally paid directly to the lender. But while it’s currently a grant, from April 2018 it will be treated as a loan to all new and existing SMI claimants.

The Government says current claimants will receive guidance in advance on how this will work, and will need to decide if they wish to continue under the new loans system.

However, the Government has confirmed the loan will not be backdated, so any SMI that’s been paid to claimants before April 2018 will remain a benefit, with no obligation to be paid back.

How will the loan work? A low level of interest will be charged on the loans – forecast to be 2.9% in 2018/19 – and will be updated every six months in line with a complicated Government forecast for the value of gilts.

The loans will be secured on the claimant’s property as a ‘second charge’ (effectively a secured loan on top of the existing mortgage).

Technically, as this is a secured loan, the Government could repossess your home if you don’t repay the loan. However, the Department for Work and Pensions says in reality the Government would never repossess your home under these circumstances.

Loan recipients will then be liable to pay back the loan the sooner of when they return to work, or when they sell their property. When someone gets a job a repayment plan will be agreed. If you refuse to repay the loan it’ll be recovered from the sale of the property.

What happens if I can’t afford to pay the loan back? In the case of those who receive SMI for a long time (e.g. into their retirement and up to their death), the amount of SMI paid plus interest, along with an administration charge, would be recouped from the equity in the property when it is sold.

 

Will the Government pay my mortgage?

Short answer: no, it won’t. The one remaining scheme, Support for Mortgage Interest (SMI), can pay the mortgage interest for you. You’ll have to find the rest of the money yourself, if you can switch to an interest-only mortgage temporarily.

If you’re eligible for the Support for Mortgage Interest scheme, the Government steps in and makes interest payments on the first £200,000 of your outstanding mortgage for the time you can’t afford them. The level of interest is set by the Government; your specific rate isn’t used.

The current interest rate is 3.12%, although it’s subject to change each time the Bank of England average mortgage rate moves by at least 0.5% away from the current SMI rate.

This means as mortgage rates go up, the SMI rate will too – and similarly it will go down if mortgage rates drop, though the change only takes place a couple of months after the target’s hit.

Who’s eligible for SMI?

You need to be receiving income support, income-based jobseeker’s allowance (i-JSA), income-based employment & support allowance or pension credit. So if you’ve recently lost your job or had an income cut, it’s important you sign on, or you won’t get SMI.

The benefit currently kicks in 13 weeks after the person (or couple) responsible for paying the mortgage claims the initial benefit (except pension credit where you can claim straight away). However, it’s been announced that the waiting period for SMI will be increased to 39 weeks from April 2016. The cash will be paid directly to your lender.

If you are claiming jobseeker’s allowance, then you can only get SMI for up to two years. There’s no limit for recipients of other benefits.

Your eligibility for the scheme will automatically be assessed when you apply for an income-related benefit. It’s up and running in England, Wales and Scotland, with a similar system in Northern Ireland.

SMI stops paying out once your benefits stop – it’s usually when you return to work, or start working extra hours to earn more. However, you may be able to claim Mortgage Interest Run On (MIRO) to help you make the transition.

MIRO lasts for four weeks, and will be the same amount Support for Mortgage Interest paid, but the big difference is that MIRO’s paid to you, instead of to your lender as under SMI. Check if you’re eligible at Gov.uk.

Who can’t claim Support for Mortgage Interest?

You can’t claim if you’ve more than £16,000 in savings, or if you own more than one residential property.

If the benefit you’re claiming is pension credit, then the amount of mortgage that you can claim interest payments for is capped at £100,000, not £200,000. However, in this instance, you don’t have to wait the initial 13 weeks before claiming SMI either (39 weeks from 1 April 2016).

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