Banks and building societies are calling on ministers to overhaul mortgage support in a bid to help UK homeowners struggling to pay off their mortgages due to the pandemic.
They are urging the UK government to reduce the wait time for the Mortgage Interest Support Loan (SMI), which is available to people on benefits.
Currently, applicants must wait 39 weeks after losing their job before they can make a claim, or after receiving universal credit for nine consecutive months.
However, banks are pushing for that deadline to be reduced to 13 weeks, echoing a move that came after the financial crisis as the pandemic increased the risk of job losses. After the financial crash, the 13-week wait time remained in place for seven years.
SMI supports unemployed people with assistance with mortgage interest payments. For 70 years it was previously issued as a benefit that did not have to be repaid, however, in 2018 the government controversially changed it to be a loan.
The loan must now be repaid when the owner sells their home or transfers the property (unless the loan moves to another property).
The SMI cannot be used for the amount borrowed by homeowners, nor for insurance policies or missed mortgage payments.
Watch: Why are house prices rising?
“Waiting times and eligibility criteria for mortgage interest support prevent distressed homeowners from receiving much-needed help when they need it most – before their financial situation worsens and arrears arrears.” mortgages don’t start to pile up, ”Charles Roe, director of mortgages at the bank’s UK Finance trading organization, said.
“We call on the government to urgently review the eligibility criteria for the SMI program to ensure that those struggling with payments do not wait more than nine months before they can access this support.
To be eligible for a mortgage interest support loan, you must generally receive one of the following eligible benefits: income support, income-based jobseeker’s allowance (JSA), employment allowance and income-related support (ESA), universal credit or credit pension.
However, those who receive universal credit cannot claim SMI if they have been paid for some form of work. Taking just a few hours of work would put the clock back to the start of the nine-month wait.
Lenders are asking that the rules be changed so that people can work up to a maximum of 16 hours per week without affecting their claim.
“Reducing the wait time and making the program more flexible would not only provide a compassionate response to those financially affected by the pandemic, it should not have a long-term impact on public spending,” said Paul Broadhead, manager. mortgage and housing policy at the Building Societies Association.
A spokesperson for the Department of Work and Pensions (DWP), which administers the SMI, said: “This government is committed to supporting people during the pandemic and beyond, by providing a strong financial safety net to those who need it.
“That is why we have invested billions in additional welfare spending, offered mortgage holidays, and we continue to provide loans to low-income people to help pay mortgage interest.”
Recent research from Social market foundation revealed that only 30% of households have enough savings to pay off their mortgage for two months thanks to the onslaught of COVID-19.
This means that homeowners could accumulate more than six months in arrears before receiving assistance from SMI, making it difficult to manage their finances.
Watch: How Much Money Do I Need to Buy a Home?