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Homeowners ‘can’t depend on the government to support them’

Rebecca Goodman
Written By:
Rebecca Goodman

Homeowners who lose their jobs may not be able to get help with mortgage payments for at least nine months, the former pensions minister Steve Webb warns.

With an economic recession on the horizon and mortgage rates soaring, Webb is urging homeowners to plan ahead and ‘think hard now’ about what they would do if they lost their income and couldn’t repay their mortgage.

A change to the benefit system and the introduction of the Support for Mortgage Interest (SMI) scheme in 2018 meant those struggling with mortgage payments could apply for loans from the government.

However, Webb says SMI is not popular. Under the previous system, which allowed those impacted to claim benefits, significantly more people were helped.

In May 2022, around 12,845 loans had been paid to help homeowners to keep up the payments on their mortgage.

This is in comparison to around 90,000 claims for help through the benefit system in March 2018 before the new system was introduced and 200,000 people who were helped a decade ago.

That equates to a decline of 85% and 93% respectively in the numbers of people being helped by the government.

The loans on offer from the government also only help with the interest on a mortgage, not repaying the actual money borrowed. They also need to be paid back with interest.

The Support for Mortgage Interest (SMI) scheme

Until 2018, anyone with a mortgage who lost their job was able to claim benefits to help with interest costs.

But this changed on 6 April 2018 and from this date those struggling had to apply for repayable loans instead under the SMI scheme. These loans, which homeowners also pay interest on, are secured against their homes.

SMI is offered by the government to those in receipt of Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, Universal Credit or Pension Credit.

Any loans need to be repaid, with interest, and for working age people there is no help for the first nine months after they lose their jobs. Yet this means big debts can build up in this time.

Lenders have previously called for help through the scheme to start after 13, not 39 weeks.

After this period, the Department of Works and Pensions (DWP) will only contribute to the interest payments on the first £200,000 of an outstanding mortgage (or £100,000 for those over pension age).

Webb warns that homeowners with big mortgages, such as first-time buyers, won’t be able to get enough help, in the form of repayable loans, to meet their mortgage costs.

The DWP pays interest at an average rate, which is currently 2.09%. This may be significantly lower than the interest rate the homeowner is paying, especially after rates have increased recently.

Interest is also applied to loans which are repaid to the government. The current rate is 1.4% but the DWP can change this twice a year.

‘The welfare safety net has largely been dismantled’

Steve Webb, partner at consultants DWP said: “If a homeowner loses their job, the welfare safety net has largely been dismantled in recent years.

“In most cases, no mortgage help is available for nine months, during which time large arrears could build up.

“And even when help does start it may fall short of actual interest payments and has to be repaid with interest when the property is sold.

“Many working homebuyers may be completely unaware of the lack of support they will get from the state if they lose their job and may need to think hard now about how they would sustain their mortgage – and keep their home – if they were to lose their job.

“One thing is clear – they cannot depend on the Government to support them”.