Support for Mortgage Interest (SMI) scheme

This briefing paper explains the assistance available for certain households with their mortgage interest payments. Help with mortgage costs is available to claimants of certain means-tested benefits for people not in full-time work. The schemes are collectively known as Support for Mortgage Interest (SMI). Assistance is currently available as a benefit but is changing to a loan on 6 April 2018.

The current (pre-6 April 2018) scheme

Help with mortgage costs is available to claimants of certain means-tested benefits for people not in full-time work. Assistance is available for people receiving Income Support (IS), income-based Jobseeker’s Allowance (JSA), income-related Employment and Support Allowance (ESA) and Pension Credit. The schemes are collectively known as Support for Mortgage Interest (SMI). Support for Mortgage Interest is also available through Universal Credit, but only where both the claimant and their partner are doing no paid work. Payments are made towards mortgage interest payments and are generally made direct to lenders.

DWP estimated that, on average each month over the course of the year, around 108,000 households might receive SMI payments in 2017/18. Of these, around 43,000 (40%) might be in receipt of Pension Credit and equivalent benefits. However, as of 21 March 2018 there were around 90,000 SMI claimants only. Total expenditure on SMI in 2017/18 is forecast to be £156 million.

A response to the financial crisis

The Labour Government made a number of changes to the SMI scheme from January 2009, as part of a wider package of measures to help people affected by the economic downturn. The “waiting period” for SMI was reduced to 13 weeks; the loan cap increased to £200,000 for new working age claims; and the “standard rate” of interest was frozen at 6.08%.  Receipt of SMI was also limited to two years for JSA claimants, although this is not the case for Universal Credit.

The changes were expected to be temporary, but remained in place, with the exception of the rate freeze, throughout the Labour and Coalition Governments. In its June 2010 Budget, the Coalition Government announced that the standard rate would be based on the average mortgage rate published by the Bank of England.  From 1 October 2010 the standard rate fell to 3.63% and remained at that level until July 2015, when it fell to 3.12%. It was reduced again on 18 June 2017 to 2.61%.

Replacing SMI with loans from 6 April 2018

In December 2011 the Coalition Government launched an “informal call for evidence” on proposals to reform SMI. Under the plans, SMI would be recouped via a charge on the property. The Coalition Government did not act on these proposals.

In the Summer Budget 2015, the Government announced plans to increase the waiting period for SMI to 39 weeks from 1 April 2016, to keep the loan cap at £200,000, and to change SMI from a benefit to an interest-bearing loan, secured against the mortgaged property, from April 2018. Provisions to implement this scheme were included in the Welfare Reform and Work Act 2016.

Regulations to implement the loan system were brought into force for most purposes on 27 July 2017: Loans for Mortgage Interest Regulations 2017  (SI.No.725/2017). Existing claimants have been contacted by Serco on behalf of the Department for Work and Pensions (DWP) and advised that if they wish to continue to receive assistance after 6 April 2018 they must apply for a loan. By 12 March 2018 95% of claimants had been contacted.