Banks call for expansion of mortgage program for distressed borrowers
The banks are calling on the government to show “compassion” to homeowners unable to pay their mortgages due to the pandemic, by expanding its loan program for people in difficulty.
UK Finance and the Association of Building Societies, which are the collective voice of hundreds of UK lenders, said the mortgage interest support program, which lends money to people to pay off their mortgages, needs to be reviewed.
If not, they say “the risk of repossession of the home could become a reality for many families and individuals” as supportive programs such as leave begin to disappear.
The Support for Mortgage Interest program can help borrowers struggling with monthly interest payments – but only if they’ve been on benefits for 39 weeks
They want the mandatory waiting period to access the program reduced from 39 weeks to 13 weeks, which they say would help homeowners “prevent their financial situation from deteriorating by getting help sooner.” .
The wait time was previously reduced to 13 weeks after the global financial crisis, when many people found themselves in financial difficulty.
“For someone who lost their job during the lockdown and is struggling to make ends meet, this change could make a real difference to their financial situation,” their statement said.
Organizations also want people with universal credit to be able to get the loan if they work reduced hours.
People must receive either universal credit or Jobseeker’s Allowance in order to qualify for the loan, and at the moment they must also have zero income.
But the proposed rule change would mean they could work up to 16 hours a week without affecting their demand.
Assumption of mortgage interest: who is eligible?
Mortgage Interest Assistance is a government loan offered to people who receive:
- Income support
- Income-based jobseeker’s allowance
- Employment allowance and income support
- Universal Credit
- Pension credit
Those who receive Income Assistance, Income Based JSA, or Income Based ESA cannot get an SMI loan until they have claimed it for 39 consecutive weeks.
Beneficiaries of Universal Credit must have claimed it for 9 consecutive months and must not work, even part-time.
Receiving a tax refund, statutory sickness benefit, maternity benefit, paternity benefit, adoption benefit, or shared parental benefit will also disqualify you.
The government says that you may still be able to get an SMI loan if you apply for any of the qualifying benefits, but you cannot get it because your income is too high.
Paul Broadhead, head of mortgage policy and housing at BSA, said:
“Lenders, government and regulators worked well together during the Covid-19 pandemic to ensure support was available for mortgage holders who encountered financial difficulties.
“However, as the end of these schemes is now in sight and unemployment is expected to rise sharply, without further action, the risk of housing 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, changes to the mortgage interest support program are now needed.
“With the 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 who are financially affected by the pandemic, but it should not have a long term duration. impact on public spending.
Many borrowers affected by the pandemic were able to arrange mortgage holidays with their lender, but requests for new pandemic-related mortgage holidays were closed in April. A total of 2.7 million people have benefited from it.
The holiday scheme, which has allowed some borrowers to continue making mortgage payments, is expected to end at the end of September.
The latest provisional government figures suggest 4.2 million jobs were on leave as of March 31.
Charles Roe, Director of Mortgages at UK Finance, added: “Waiting time and eligibility criteria for mortgage interest support prevent distressed homeowners from getting much-needed help when they need it most. need – before their financial situation gets worse and mortgage arrears start to pile up. up.
“We call on the government to urgently review the eligibility criteria for the SMI scheme to ensure that those with payment problems do not wait more than nine months before they can access this support.”
“Without further action, the risk of home repossession could become a reality for many families,” says Paul Broadhead, mortgage manager at the Building Societies Association.
How mortgage interest coverage works
The SMI was once a non-repayable benefit, but now it is a loan that must be repaid.
The payment you receive will only cover your mortgage interest, not the amount you borrowed or any arrears.
Borrowers must repay with interest when you sell or transfer ownership of your home, although the loan can be transferred to another property.
The government cannot force you to sell your house to pay off the loan.
The interest you pay may go up or down, but the rate won’t change more than twice a year. The current rate is 0.3%.
You will pay off the SMI loan on what is left over after you have paid off your mortgage and all loans secured by your home.
If you don’t have enough left to pay off the entire SMI loan, the remainder of the loan will be amortized.
What support is available for those still having difficulty with mortgage payments?
For borrowers who are not currently eligible for the SMI scheme, there are other options.
The government-mandated mortgage holiday program is now closed and the currently active mortgage holidays will only last until the end of July.
Lenders will have their own individual processes for people in financial difficulty, so you can always ask your bank or mortgage company to defer your payments. It doesn’t matter if you’ve already taken mortgage leave.
However, lenders are no longer forced to accept, and can perform more stringent checks before offering one.
Unlike the old plan, this payment holiday can also affect your credit rating.
If so, your lender should be clear about whether any new support you accept will affect your credit report and give you time to assess your options.
Housing and financial counseling charities such as Shelter, Stepchange, Money Advice Service, and Citizens ‘Advice can provide advice on borrowers’ options.
Talking to an independent mortgage broker can also help you assess your situation, and most don’t charge borrowers a fee.
Mark Harris, managing director of mortgage broker SPF Private Clients, said: “The amount of savings in the bank for the age group where most jobs have been put on leave is just over £ 3,500.
“When you consider the average mortgage payment, it won’t be long before these savings banks are used up.
“Reducing the waiting time to claim the 39-week SMI would therefore be extremely welcome. This would make it possible to act sooner, before the borrower is left with additional arrears and it is more difficult to correct the downward spiral.
“Anyone who is having difficulty with their mortgage payments or is worried that they will soon find themselves in this situation should contact their lender as soon as possible. It’s always best to keep your lender in the know and there are a number of options that can be tailored to your specific situation. ‘
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