If you’re on certain benefits and you’re struggling to pay your mortgage, you might be able to get help from the government to pay the interest on your mortgage. This is called Support for Mortgage Interest (SMI).
What is Support for Mortgage Interest
You will be able to continue claiming SMI as a benefit for a limited time if you need someone to make financial decisions for you, due to a health condition or disability.
From 6 April 2018, Support for Mortgage Interest (SMI) will be paid as a loan - which must be repaid when you die or sell your home. Before this date, SMI was paid as a benefit, which you didn’t have to repay.
If you’re getting SMI as a benefit now, you will be offered the choice of taking out an SMI loan in future. The amount you have already received as a benefit does not need to be repaid.
Who gets SMI?
To get Support for Mortgage Interest, you must be out of work or of State Pension age, and get:
- Income Support
- Income-based Jobseeker’s Allowance
- Income-related Employment and Support Allowance
- Universal Credit, or
- Pension Credit.
There is a 39-week waiting period from the time you claim SMI until your first payment is made (unless you’re getting Pension Credit, in which case you can get help immediately).
Because there are less than 39 weeks before SMI changes from a benefit to a loan, any new claims will receive SMI as a loan, not a benefit (unless you’re on Pension Credit).
If you do any paid work during these 39 weeks, your waiting period will stop - and you can start it again the next time you are out of work.
SMI for home improvement loans
You can also get SMI to help pay the interest of a loan you’ve taken out to cover:
- essential repairs or improvements to your home – such as insulation, repairing dangerous faults or adapting your home if someone in your household is ill or disabled
- buying your ex-partner’s share in your home if you have separated.
What you’ll get
The government will pay the interest on up to £200,000 of your mortgage (or up to £100,000 if you’re getting Pension Credit).
The government will use a standard interest rate to calculate the amount they will pay. In other words, the interest rate the government uses might be different to the actual interest rate on your mortgage. The government interest rate is variable so it might go up or down over time.
The payments will normally be made directly to your mortgage lender.
There is no help available to help repay the capital (the amount you originally borrowed) of your mortgage.
Key facts about the SMI loan
- there are no fees to set up the loan
- you don’t have to get a credit check to get the loan
- unlike a normal loan, you don’t have to make regular repayments - unless you want to
- interest will be added to the total amount you owe, until the loan is paid back or written off
- you will not get a loan automatically - you have to choose to take one out
- the loan is secured against your home. When you sell your home or transfer the ownership of it to someone else, you must pay back the loan out of any equity left over once your mortgage is repaid.
How long can you get SMI for?
If you’re claiming Jobseekers Allowance, you can only get SMI for up to two years.
If you get Income Support, Income-related Employment and Support Allowance, Universal Credit or Pension Credit, there’s no limit to how long you can claim SMI for.
If you’re already getting SMI as a benefit
If you’ve been getting SMI as a benefit, this will end on 5 April 2018. You will get a letter from the Department for Work and Pensions (DWP) offering you an SMI loan instead, which you can take out from 6 April 2018.
You will not have to repay the amount you‘ve already received as a benefit - but you will need to decide whether you want to take out an SMI loan, or take over full responsibility for paying the interest on your mortgage.
You will also get a booklet called Information about Support for Mortgage Interest, which will explain what you can do.
Finally, you will receive a phone call from Serco, who are working on behalf of DWP to explain the changes to SMI. They will answer any questions you have about these changes.
The options available to you include:
- accepting the offer of an SMI loan
- contacting your mortgage lender to see if you there are other ways to manage your mortgage payments
- accepting the offer of an SMI loan and using savings to pay it back
- asking family or friends for help to repay the SMI loan
- asking a credit union, bank or building society for a loan
- moving to a different property.
How is interest charged to your SMI loan?
The help you get to cover the cost of interest on your mortgage repayments is based on a Standard Interest Rate. This is currently 2.61% and can be subject to change, but you will be told if this happens. The following example assumes no change in this rate.
Because the help you have received is now a loan you will be charged interest. The longer you receive help, the more interest you will be charged. This is calculated daily and can be subject to change. This cannot happen more than twice in any year.
If you receive £22 each week towards the interest on your mortgage. The total help you will have received is £1,144 (£22 x 52 weeks). This, plus the interest your charged (currently 1.5%), is the amount of your SMI loan.
How much will an SMI loan cost?
||Outstanding loan at beginning of year
||SMI loan payments made during the year
||Outstanding loan owed at year end before interest
||Interest charged on loan
||Amount of interest added that year
||Balance owed at the end of the year (Payments plus interest)
||Cumulative interest charged on your SMI loan owed
Accepting the offer of an SMI loan
The SMI loan will accrue each month and attract compound interest equal to the ‘gilt rate’ (or the rate of interest on government bonds). This interest rate fluctuates - so it might go up or down during the time you have the loan.
When you sell your home or when you die, the loan must be paid back in full. However, if you die and your house passes to your spouse or civil partner, the loan can be paid back when they die instead.
DWP will recover the loan in full out of the money you (or your heirs) get from the sale of your home.
You can also choose to pay back the loan at any time - for example, if you find paid work and can afford to make repayments.
The minimum amount you can repay at one time is £100 or the outstanding balance, whichever is less.
What if you don’t have enough equity in your home to pay back the loan?
When your home is sold, if there is not enough money left over after your mortgage is repaid to pay back the SMI loan, the remaining amount will be written off and DWP will consider the loan to be fully repaid.
Mortgage lenders know SMI will no longer be available as a benefit from April 2018. They might be able to offer different ways to pay your mortgage, such as payment holidays or extending the term of your mortgage. You might also be able to switch mortgages to get a better interest rate.
Using your savings to repay the SMI loan
To get the benefits you’re getting, you must have less than £16,000 in savings or investments (or £10,000 if you’re getting Pension Credit).
If you have between £6,000 and £16,000 in savings or investments (or between £6,000 and 10,000 if you’re getting Pension Credit), the amount of benefit you’re getting now might be reduced.
If you use this money to pay off your SMI loan, the amount you’re getting in benefits might increase - if your savings fall below £6,000.
Asking friends or family for help to repay the SMI loan
If you have family members or friends who have their own income, you might want to ask them to lend you the money to pay back your SMI loan.
This could be a good option if the person you’ve borrowed the money from doesn’t charge you any interest.
But you should always think carefully before you borrow from family or friends and be sure you can pay back what you’ve borrowed within an agreed timeframe. If you can’t, it could affect the relationship you have with that person.
Read our guide ‘Should you borrow from family and friends?’
Asking a credit union, bank or building society for a loan
You could ask a credit union, bank or building society for a loan, which you could use to pay back your SMI loan.
A credit union, bank or building society loan will not be secured against your home, so your home is not at risk if you can’t keep up with repayments.
Bear in mind, you would need to have a credit check, and that a loan from a credit union, bank or building society is likely to have a higher rate of interest than the SMI loan.
We can also help you think your options through in our ‘Before you borrow’ section.
Moving to a different property
You could sell your home and buy a cheaper house, which would mean you could have a smaller mortgage - or you might not need to have a mortgage at all.
Remember to factor in the other costs of moving house - like Stamp Duty and removal costs, for example.
Before you decide, get advice
Before you decide whether an SMI loan is the best option for you and your household, it’s a good idea to seek professional advice.
Call us on 0800 138 7777 for free, impartial money advice. Lines are open Monday to Friday, 8am to 6pm and Saturday, 8am to 3pm (webchat only). Calls are free.
You can also get housing advice from these organisations:
How to claim SMI