If you lose your job or you’re too ill to work, or if you’re on a low income, covering your mortgage costs could become a real struggle.
If you are finding things tough, you should speak to your lender first of all, to see whether there might be any ways they can help make your payments more affordable, for example by switching part or all of your mortgage onto an interest-only basis, or extending your mortgage term temporarily. You can find out more about this in our guide What can you do if you can’t pay your mortgage?
You may also be eligible for government help with mortgage payments. Here’s what you need to know.
Who qualifies for support for mortgage interest?
At the moment, if you’re unemployed, too ill to work or you’re on a low income in retirement, you may qualify for state help towards your mortgage. It’s called support for mortgage interest (SMI) and is offered as a repayable loan.
Support for mortgage interest:
- Is not paid for the first 39 weeks that you’re receiving benefits, unless that benefit is Pension Credit or Universal Credit.
- Can start from the date you start getting Pension Credit.
- Can start if you’ve got Universal Credit for 3 months in a row.
- Is paid direct to your mortgage lender.
- Only covers the interest part of the mortgage. If you’re on a repayment mortgage (otherwise known as ‘capital and interest’), the part of your mortgage payments that repay the capital you borrowed won’t be covered. It also cannot be used to cover the cost of any insurance policies or for mortgage arrears.
- Covers mortgage interest on loans up to £200,000 if you’re claiming an out of work or disability benefit. However, it only covers mortgage interest on the first £100,000 of a mortgage or loan if you’re claiming Pension Credit or if you started claiming another benefit that entitles you to support for mortgage interest before 2009. There is an exception to the £100,000 limit if you’re claiming Pension Credit, and that’s if you are already getting support for mortgage interest and move to Pension Credit within 12 weeks of stopping claiming other benefits. In that case, you’ll still be able to get SMI on the first £200,000 of your mortgage.
- Is paid as a loan. You’ll need to repay the money you get with interest when you sell or transfer ownership of your home (unless you’re moving the loan to another property). If you want to pay the loan back more quickly, you can also make voluntary repayments.
How does the support for mortgage interest loan work?
The interest rate used to calculate the amount of SMI you’ll get is currently 3.16%. So, for example, if you have £250,000 of your mortgage left to pay and you’re eligible for SMI for up to £200,000, you’ll get a loan of 3.16% of £200,000 across a year, which is equivalent to £6,320 a year or £526.66 a month
The support for mortgage interest loan works in a similar way to a standard mortgage, in that it will be secured against your home. However, it will have to be paid back when you sell your home or when you die. If you have a partner, the loan does not have to be repaid until they die, if you die first.
If the loan is worth more than the remaining equity in the property, the outstanding balance will be written off. The debt won’t be passed onto your children or partner if there’s insufficient equity to repay it.
What’s the interest rate charged on an SMI loan?
The interest rate is not fixed, although it will not change more than twice a year – in January and July. It is linked to the interest rate that the government pays on gilts (the official term for UK government bonds). At the time of writing, the interest rate is 4.5%. This interest will build up on your SMI loan, unless you make payments towards it.
You can make payments towards the SMI loan at any time. The minimum you can pay is £100. You can find out more about SMI at GOV.UK.
What if I’m already in arrears?
If you’re already behind with your mortgage payments, please don’t suffer in silence.
There are plenty of free sources of advice and many charities and organisations that can help you negotiate payment plans with your creditors on your behalf. These include:
- Citizens Advice – 0800 144 8848 (England) 0800 702 2020 (Wales)
- StepChange – 0800 138 1111
- National Debtline – 0808 808 4000
- PayPlan – 0800 280 2816
If you’re at risk of being evicted from your property and you live in England or Wales, you may be able to get help from The Housing Loss Prevention Advice Service.
This means you should be entitled to get free legal advice and representation in court from the moment you receive a written notice from a creditor. A housing expert will work with you to identify what has led to the possession claim and will be able to suggest possible solutions. You can find your nearest Housing Loss Prevention Advice Service provider by entering your postcode and ticking the box ‘Housing Loss Prevention Advice Service’, at GOV.UK.
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