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Lenders urge government to ease SMI rules as payment deferrals end

  • 27/05/2021
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Lenders urge government to ease SMI rules as payment deferrals end
Lenders have called on government to reduce the wait-time for Support for Mortgage Interest (SMI) before the end of payment deferrals introduced in response to the Covid-19 crisis.


They have asked government to change the rules on claiming SMI by cutting the waiting time to 13 weeks from the current 39.

This same change was previously enacted following the financial crisis in 2009 and stayed in place for seven years.

Lenders are now asking government to introduce the change permanently, and also to let people who claim Universal Credit (UC) also claim SMI if they are working reduced hours.

The SMI benefit is later paid back when the property is sold, “meaning that changes will have a very limited impact on the government purse but have a huge impact on the households that will benefit,” UK Finance said.

To be eligible for SMI, people must be receiving a benefit such as Job Seekers Allowance (JSA) or UC. Currently, if people move from JSA to UC, the zero-earnings rule means they can no longer get SMI if they earn any income.

Lenders want the zero-earnings rule dropped from SMI eligibility so that people can work up to 16 hours without it affecting their claim.

Paul Broadhead, head of mortgage and housing policy at the Building Societies Association, said: “Lenders, government and regulators have collaborated well during the Covid-19 pandemic to ensure support has been available to mortgage holders who have experienced financial difficulties. However, as the end of these schemes is now in sight and unemployment looks set to rise sharply, without some further action the risk of home repossession could become a reality for many families and individuals despite the best efforts of lenders.

“To support struggling homeowners as they adjust to their new normal, modifications to the SMI scheme are needed now. With SMI already structured as a loan rather than a benefit, 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.

“Without the reforms we are recommending, we expect more government funding will be required for the provision of housing benefits for former homeowners who were unable to get the financial support they needed, when they needed it.” 

Charles Roe, director of mortgages at UK Finance, added: “The wait-time and eligibility criteria for SMI are 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.

“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,” Roe said.

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