Earlier this afternoon I spoke with representatives from Citizens Advice Sutton (CAS) about support for homeowners during the ongoing coronavirus pandemic.
A recent report - "From SMI to Mortgage Support: How to help struggling homeowners through the pandemic" - written by the Centre for Policy Studies (CPS) thinktank and supported by the Joseph Rowntree Foundation, has recommended the reform of the support for mortgage interest (SMI) loan scheme.
CAS highlighted the impact that the loss of income has on an owner occupier family’s ability to maintain their home during a financial crisis, whether as a result of the COVID-19 pandemic or some other life event. Generally, the benefits system is focussed on those who rent rather than own their home even though around a third of those in poverty are owner occupiers.
As the report outlines, whilst there is currently support available to owner occupiers there are numerous barriers to accessing it. Claimants can only access loan for help with mortgage interest, not the debt and after a wait of nine months after claiming benefits which is reset if they find some work, with the whole amount withdrawn as a result of the ‘zero earnings rule’ as soon as they get any form of employment.
The report advocates that there is a short-term need to improve the Support for Mortgage Interest (SMI) scheme to support homeowners through the crisis. The report goes on to state that not only is this a compassionate response, it is also cost effective, given that it is much cheaper for the state to cover the costs of mortgage interest than to support someone via housing benefit. For example, the report outlines that if 50,000 households were able to stay in their homes with SMI, rather than being pushed into renting, it would represent a welfare saving of roughly £250 million. In addition, it would be far more popular with the families themselves.
This should not involve the Government subsidising people to retain assets they can no longer afford, or to build up capital where renters cannot, but helping them cope with shocks both personal and economic. Given that financial support would be largely loan based the bulk of it would eventually be reclaimed.
The key recommendations made within the report are:
- SMI should be available from day one – the 9 months wait period should be abolished
- lenders should be asked to inform those borrowers in arrears about the benefits of this scheme and encourage transferring to interest-only mortgages where there is a risk of people losing their home
- the first 3 months of SMI should be paid as a grant, not a loan
- no interest should be charged on the next nine months of any claim
- there should be greater flexibility in allowing people to claim SMI while moving into work to remove the current cliff edge of support
I have written to the Secretary of State for Work and Pensions to bring this to her attention, and have asked her to consider the recommendations made in the report.
You can find a copy of my letter, as well as the report itself, below.
Image courtesy of Andrea Piacquadio via Pexels.