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From SMI to Mortgage Support

From SMI to Mortgage Support

The pandemic has had a shattering impact on many families’ livelihoods. Claims for Universal Credit have shot up, and there will be more pain to come as the furlough scheme is wound down, which coincides with the end of the mortgage holiday arrangements. Half of those with a mortgage who have moved onto Universal Credit since March have needed to take up a mortgage holiday.

A new paper from the Centre for Policy Studies warns that, as millions face losing their jobs when furlough ends next month, many will risk losing their homes as well when the mortgage holiday arrangements end at the same time. Even with the Job Support Scheme, many could struggle to pay their mortgages without reform to the support available.

Despite 1/3 of those in poverty being owner-occupiers, housing benefit only covers renters. Home owners can only get help with their mortgage interest payments, and even then, they must wait nine months to qualify - and the whole amount is withdrawn if they take on any work at all.

The report, supported by the Joseph Rowntree Foundation, argues that the Support for Mortgage Interest (SMI) scheme needs urgent reform to support low-income homeowners through the crisis, and more generally to improve the benefits system so that it better supports struggling homeowners.

It argues that as well as being necessary and compassionate, such measures will be far more cost-effective for government than seeing people lose their homes and go on to housing benefit. Largely because the current version of SMI is a loan-based scheme with virtually no ultimate cost to government.

To ensure those with mortgages who lose their jobs don’t also lose their homes, the CPS is proposing that:

  • the nine-month waiting period for SMI should be abolished;

  • the first three months of SMI should be paid as a grant, not a loan;

  • Government should allow people to claim SMI while moving into work, as with other benefits;

  • lenders should make people who are at risk of losing their homes aware of this scheme automatically;

  • to ensure that people do not remain in homes they cannot afford in the long term, SMI should be time-limited for claimants who are able to work and are not receiving a disability-related benefit.

The report also argues that there is a longer-term need to rebalance the welfare system to reflect the desire of those on low or moderate incomes to achieve, and retain, home ownership.

James Heywood, CPS Head of Welfare and Opportunities, said:

“The Support for Mortgage Interest Scheme is going to be vital for ensuring people losing their jobs do not also lose their homes before they manage to get back to work. The Government needs to act now to make the necessary changes so people can move straight onto SMI when their mortgage holiday runs out or when they become unemployed.

“If they don’t, not only will people be forced out of home ownership into the rented sector, it will also cost the state more to support them through housing benefit.

Darren Baxter, Policy and Partnerships Manager at the Joseph Rowntree Foundation, said:

“Even before coronavirus hit, a third of homeowners were living in poverty. And as the economic fallout from the pandemic grows, that number is likely to rise. With the deadline for applying for a mortgage holiday rapidly approaching, now is the time for government to take swift action.

“Reforming the Support for Mortgage Interest scheme is a targeted and cost-effective way of preventing struggling homeowners from being pulled further into poverty. This crisis has shone a spotlight on just how important a safe, secure and stable home is. The government’s focus must be on ensuring people can stay in their homes, whether they be homeowners or renters.”

james heywood - Tuesday 29th September 2020

James is Head of Welfare and Opportunity at the Centre for Policy Studies. He specialises in tax and welfare, housing, and economic policy, with a particular focus on disadvantaged groups and places, and people on low incomes.

Alex is Head of Policy at the CPS, overseeing our internal policy work. He was previously a Director at Field Consulting, but before that was responsible for housing and planning in the No 10 Policy Unit, including working on key policies in the 2015 manifesto. He was previously Head of Housing at Policy Exchange.