Mortgages - help with payments

 August 2016

Fact sheet no. 38 EW Mortgages - help with payments

Use this fact sheet to:

  • understand the different schemes and sources of help;
  • work out if you might be eligible for help;
  • and help you get the support you need.

Which benefits will help with mortgage payments?

If you need help with your mortgage and you are getting certain benefits, you can apply for Support for Mortgage Interest (SMI). If you receive Universal Credit you may get the housing costs element as part of this to help with your housing costs. 

Mortgage arrears guide

For more information about how to deal with mortgage arrears, see our detailed Mortgage arrears guide.

This guide gives you information and advice if you are behind on your mortgage. It explains your options and the processes your lender must follow.

Use this guide to:

  • find out if there is any help you can get;
  • work out which option is right for you;
  • help you negotiate with your lender; and
  • get advice about how to deal with court action.

This guide also includes some useful contacts and links for you to get further help.

Information:

Mortgage rescue schemes in Wales

  • Mortgage rescue schemes operate in Wales. A mortgage rescue scheme is a last resort if you are at risk of repossession. Schemes either allow you to stay in your home as a tenant or allow you to stay in your home by sharing ownership with a housing association.
  • They are run according to the rules laid down by the local council. Contact your local council to see if a scheme is running in your area.

Mortgage rescue schemes in England closed on 31 March 2014. Some local authorities and housing associations may still run mortgage rescue type schemes. Contact your local council to see if anything is available in your area.

Support for Mortgage Interest (SMI)

Can SMI help me?

Important: 

Universal Credit

Income-based Jobseeker’s Allowance, income-related Employment and Support Allowance and Income Support will gradually be replaced by a new benefit called ‘Universal Credit’. If you are already getting one of these benefits, you should be transferred onto Universal Credit by October 2021.If you get Universal Credit, you may have at least some of the interest on your mortgage and secured loans paid for you, as long as you do no paid work. The rules about how much help you can get are complicated. Contact us for advice.

If you claim Income Support, Pension Credit, income-related Employment and Support Allowance or income-based Jobseeker’s Allowance, the Department for Work and Pensions (DWP) will normally pay at least some of the interest on your mortgage, as long as you took the mortgage out to buy your home.

The following rules apply to payments of SMI.
  • Support for Mortgage Interest is paid at a standard rate set by the Government, not necessarily at the rate that you actually have to pay. Because of this, all your interest may not be covered unless your interest rate is less than the standard rate. If your lender gets paid more than the mortgage requires, they should pay the extra towards any arrears that you have first. If you are not sure that your mortgage interest payment is being covered, contact us for advice.

  • All mortgage interest payments are sent directly to your lender by the DWP, unless your lender is not part of the scheme agreed with the DWP.
  • Extra advice:

    benefit cap

    The Government has put a cap on how much you can receive in benefits if you and your partner are of working age but not working. This cap includes SMI. It means the total amount of SMI you receive could be reduced.

  • If you are getting contributory Employment and Support Allowance, or contribution-based Jobseeker’s Allowance, you may still qualify for help with your mortgage. This will depend on your other circumstances, including whether or not you have any other income coming in and how much savings you have. Contact us for advice.

What help will I get?

If you can get help through SMI, the DWP will make payments towards some, or all, of your mortgage interest repayments.

This may pay the interest on any other loans you took out to buy your home. They may pay other housing costs, such as ground rent and some service charges. They may also help you to pay loans that you took out to make necessary repairs or improvements to your home. Only certain repairs and improvements count, such as adapting your home for someone with a disability. If your claim is turned down, you can appeal against the decision. Contact us for advice.

If your mortgage is in someone else’s name, but you have to pay the mortgage to keep your home, the DWP will decide if it is ‘reasonable’ for you to pay. If you are in this position, contact us for advice.

Will SMI cover all my housing costs?

You cannot claim for help with: 

Information:

the capital limit

SMI will only pay towards the interest on loans up to a maximum amount, called the ‘capital limit’.  This maximum amount is different, depending on the rules that apply to you. See the next section for details. If your mortgage is higher than your capital limit, you will not get help with the extra part.  If you are in this position, find out from your lender how much more you need to pay each month to make up your full mortgage payment.  Pay the extra amount to the lender, if you can, to avoid more arrears building up. These rules are complicated. If you are not sure which rules apply to you, contact us for advice.

  • the full interest on a remortgage for more than the original loan that was used to buy your home, unless the extra was used for certain home improvements;
  • a mortgage or secured loan, if the money was used to pay off other debts, fund a business, or pay for other items such as a car or holiday;
  • interest on a larger loan taken out while you are on Income Support, Pension Credit, Employment and Support Allowance, Jobseeker’s Allowance, or within 26 weeks of coming off benefit (only the interest up to the original amount of your loan will be covered);
  • housings costs that DWP decides are too high because your house is larger or more expensive than you need; or
  • any mortgage or loans that are beyond an amount called the ‘capital limit’ (see the capital limit in the information box).

Make sure that you pay your lender enough to cover the monthly capital payment. If you do not pay it, your mortgage arrears will increase and your lender may take repossession action against you. If you cannot afford to pay the capital part of your monthly mortgage payment, contact us for advice.

SMI waiting periods

Depending on your circumstances, you may have to go through a ‘waiting period’ before you start receiving SMI.

  • If you are getting Pension Credit there is no waiting period. You get help with 100% of the interest that is covered on your loan or mortgage, up to the limit of £100,000. If you are already getting SMI and move to Pension Credit within 12 weeks of stopping your other benefits, you will still get help with interest on up to £200,000 of your loan or mortgage.
  • From 1st April 2016 the waiting period is 39 weeks before you receive help if you are on Income Support, Jobseeker’s Allowance or Employment and Support Allowance. After 39 weeks, you will get help paying the interest on up to £200,000 of your loan or mortgage.
  • From 5th January 2009 to 31st March 2016 the waiting period was 13 weeks. If you made your claim during this time, you should only have to wait 13 weeks for help from SMI.

Extra advice:

Universal Credit

The waiting period under Universal Credit will be nine months before you get help with housing costs. After waiting, you may get help with interest on up to £200,000 of your loan or mortgage.

Information:

different rules for older benefit claims

There are different rules that apply if you started claiming benefit before 5 January 2009. These rules are complicated. If this applies to you, contact us for advice.

What do I do if my interest rate is higher than SMI will cover?

SMI will pay your interest at a fixed rate called the ‘standard rate’. If the interest rate of your mortgage is higher than this, you will have to make up the difference each month, to avoid arrears building up.

If your full mortgage interest is not being paid, get a complete breakdown of how your housing costs have been worked out by the DWP. Make sure you know how much extra you have to pay to the capital, interest or to the endowment part of your mortgage.

Your lender may expect you to make up the payments from your benefit. We can help you to go through your personal budget to see if you can afford to do this. Contact us for advice.

What if other adults live at home?

If you have adults living with you who are not part of your household, the DWP may not pay the full interest on the mortgage. The DWP calls them ‘non-dependants’, and will usually take an amount from your mortgage interest payment. The non-dependant is then expected to make up the difference. In some circumstances no deduction will be made (for example, if you or your partner are blind, or receive Attendance Allowance, Disability Living Allowance, or Personal Independence Payment, or because you need care). Contact us for advice.

How do I make a claim?

You can make a claim for SMI when you first apply for benefit at your local Jobcentre Plus office, or at the Pension Service if you claim Pension Credit. See the Useful contactsat the end of the fact sheet.

Extra advice:

help with mortgage interest

If you are not sure that you are getting all the help with mortgage interest that you should, contact us for advice. You may be able to appeal against the DWP's decision.

How long will I get help with my mortgage interest?

If you make a claim for Jobseeker’s Allowance you will usually not be able to get SMI for more than a maximum of two years. If the period that you get SMI is coming to an end, contact us for advice.

If you receive Income Support, Employment and Support Allowance, or Pension Credit, this time limit does not apply.  You will receive help with housing costs for as long as you get these benefits.

Information:

SMI and the pre-action protocol

It is important to tell your lender as soon as you have made a claim for SMI. This is because the mortgage pre-action protocol warns lenders that if they still take you to court when they know that you have claimed SMI, they will have to give reasons why they are still carrying on with possession action. If your lender is still taking you to court, contact us for advice.

Lender threatening court action 

If you are in arrears and your lender is threatening court action, you should take the following steps.
  • Make sure your lender knows that you have claimed SMI.
  • Most mortgage interest payments are sent direct to your lender by the DWP. If your lender is not part of this scheme, ask them if they will accept direct payments.

Sale and rent back

You may have seen adverts by private companies that say they will buy your home and rent it back to you. These are generally called ‘sale and rent back’ schemes.

The Financial Conduct Authority (FCA) brought in new rules in July 2009 to improve how sale and rent back companies behave. The full rules came into effect on 30 June 2010. From then on, sale and rent back agreements have to include:

  • a fixed-term tenancy agreement of at least five years; and
  • a cooling-off period of 14 days to give you time to think through your decision.

Companies providing private sale and rent back schemes now have to be authorised by the FCA. If a company offers a sale and rent back scheme without being authorised, it is committing a criminal offence. You can check the FCA register of authorised companies on the FCA website www.fca.org.uk.

Extra advice:

before you sign an agreement

Be very careful before you sign up to a sale and rent back scheme. Make sure you understand how this affects your home and finances. It should be seen as a last resort. Get independent financial advice and contact us for advice.

Information:

challenging an agreement

You may be able to challenge the agreement that you made; for example, if you were told one thing and the contract says something different. If you think this might apply to you, contact us for advice.

Quick sale companies

Extra advice:

quick house sales

The Money Advice Service warns consumers to be careful on their website page about Quick house sales. You will also find information there about how to make a complaint if you have received poor service from a company. Contact us for advice.

There are companies that specialise in buying homes from owners in financial difficulty, or who otherwise need a quick sale. The catch with these schemes is that the price the company pays for your home will be lower than its market value. There have also been reports of very high fees and companies making misleading claims about the true value of your home.Be careful.

Before agreeing to anything with a company offering you a quick sale, contact us for advice.

Useful contacts

Jobcentre PlusNew benefit claimsPhone: 0800 055 6688
Financial Conduct Authority (FCA)Phone: 0800 111 6768www.fca.org.ukFinancial Ombudsman ServicePhone: 0800 023 4567Email: complaint.info@financial-ombudsman.org.uk

Money Advice ServiceFree advice and guidance on money matters.Phone: 0800 138 7777Email: enquiries@moneyadviceservice.org.uk www.moneyadviceservice.org.uk

Pension ServiceHelp making a claimPhone: 0800 731 7898