UK Finance and the Building Societies Association say that as it stands, struggling homeowners’ circumstances are likely to deteriorate during the 39 week wait.
The bodies want a permanent reduction from 39 to 13 weeks and demand that owners on Universal Credit should be permitted to claim SMI if they are working reduced hours
“SMI is a loan and not a benefit, meaning that changes will have a very limited impact on the government purse but have a huge impact on the households that will benefit” say the two organisations.
SMI payments are made directly to the mortgage lender and can be claimed on up to £200,000 of mortgage, or £100,000 mortgage for those on Pension Credit.
Mortgage lenders have provided around 2.9m mortgage payment deferrals to help homeowners who were struggling because of Covid-19.
However, the associations say that as emergency support measures are coming to an end - and although lenders have other forbearance measures available to help those still struggling - SMI is an increasingly vital support.
They says that research suggests only 30 per cent of households have enough savings to pay their mortgage for two months, but the wait time for those eligible to claim SMI is currently nine months.
“This means homeowners could accumulate more than six months arrears before they receive much-needed support making it significantly harder to manage and resolve their financial difficulties.”
The lenders add that one in 10 homeowners found it difficult to keep up mortgage payments in the last year, with the top reasons including being furloughed or on reduced pay (34 per cent) and working fewer hours (31 per cent).
“We are calling for the zero-earnings rule to be removed from the SMI eligibility criteria, so that people can work up to 16 hours a week without it affecting their SMI claim. In addition, as SMI is a loan not a benefit, it does not need to be treated like other UC payments” say the organisations.
Paul Broadhead, dead of mortgage and housing policy at the BSA, adds: “Lenders, government and regulators have collaborated well during the Covid-19 pandemic to ensure support has been available to mortgage holders who have experienced financial difficulties.
“However, as the end of these schemes is now in sight and unemployment looks set to rise sharply, without some further action the risk of home repossession could become a reality for many families and individuals despite the best efforts of lenders.
“To support struggling homeowners as they adjust to their new normal, modifications to the Support for Mortgage Interest scheme are needed now. With SMI already restructured as a loan rather than a benefit, reducing the wait time and making the scheme more flexible would not only provide a compassionate response to those financially impacted as a result of the pandemic, it shouldn’t have a long-term impact on government expenditure.
“Without the reforms we are recommending, we expect more government funding will be required for the provision of housing benefits for former homeowners who were unable to get the financial support they needed, when they needed it.”
The Department for Work and Pensions, which administers the SMI, says the government is committed to supporting people through the pandemic and beyond, and has invested billions into additional welfare spending as well as offering mortgage holidays.
It says mortgage borrowers facing difficulties should go to their lender to see what support was available.