The SMI scheme is a government loan scheme that helps homeowners on benefits pay interest on their mortgage or on loans taken out for certain home improvements or repairs.
The money is paid directly to the mortgage lender and is repaid with interest once a property is sold, or the ownership is transferred. It can be claimed on up to £200,000 of a mortgage or £100,000 for those on pension credit.
Currently, homeowners must wait 39 weeks to claim, or around nine months, meaning their financial situation could further deteriorate leading to possible repossessions.
UK Finance and BSA has called on the government to reduce the wait time for SMI from 39 weeks to 13 weeks, and to allow people on universal credit to claim if they are working reduced hours.
The scheme is subject to a zero-earnings rule so those moving from Jobseeker’s Allowance to Universal Credit may not be eligible if they receive any income for work.
The trade bodies said the changes would have a “very limited impact” on the government purse as it is a loan, not a benefit, but it could have a huge positive impact on household budgets.
BSA’s head of mortgages and housing policy Paul Broadhead (pictured) said: “With the end of the furlough scheme only days away, there is a likelihood that unemployment will rise. Without urgent modification of the SMI scheme the risk of home repossession could become a reality for many despite the best efforts of lenders.
“Without the reforms, 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, UK Finance’s director of mortgages, said: “The current wait time and eligibility criteria for SMI is preventing much-needed help going to struggling homeowners before their mortgage arrears start building up.
“As the furlough scheme comes to a close, we may see more people needing to use SMI. UK Finance and the BSA are calling on the government to urgently review the scheme’s eligibility criteria and reduce the existing wait time of over nine months.”