Mortgages - help with payments

 March 2017

Fact sheet no. 26 SCOT Mortgages - help with payments

This fact sheet tells you the different types of help you might be able to get with your mortgage. If you are behind with your mortgage, or think you might be soon, it is important to explore all these options.

Use this fact sheet to:

  • find out about the different schemes and sources of help;
  • work out if you might be eligible for help; and
  • help you to apply.

What support is there?

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.

You can apply for help with your mortgage from two main sources.

  • The Home Owners’ Support Fund.
  • Support for Mortgage Interest (SMI), if you are getting certain benefits.

This fact sheet explains both of these. It also considers ‘sale and rent back’ schemes and companies offering quick home purchases.

Warning:

take legal advice

You need to take legal advice before you decide to take part in one of these schemes. You need to make sure that you understand all the details before you sign up.

Home Owners’ Support Fund

Information:

booklet

The Scottish Government has published a booklet on its website www.gov.scot called Are you in danger of losing your home? Contact us for a copy if you can't print it off.

The Home Owners’ Support Fund is the last resort when you own your own home and are in danger of having it repossessed because of financial difficulties. There are two kinds of help that it can give.

  • The Mortgage to Rent scheme allows you to stay in your home, but as a tenant rather than a homeowner.
  • The Mortgage to Shared Equity option also allows you to stay in your home, but the Scottish Government takes a financial stake in your home.

Mortgage to Rent Scheme

Remember:

Housing Benefit

You may be able to claim Housing Benefit to help you to pay your rent.  See the later section Help with rent.

If you join the Mortgage to Rent scheme, a local council or housing association will buy your home from you and any mortgage, mortgage arrears, or secured loans will be paid off.  

You will usually become a Scottish secure tenant and will pay rent at the rate the landlord usually charges in your area.  The transfer should take about four months, but the time it takes could vary, depending upon your circumstances.  Make sure you know how much your rent is going to be before you agree to sell your home.

Buying back your home

After a certain number of years have passed, you may be able to buy back your home. There are rules about when this is possible.  Contact the Home Owners’ Support Fund helpline on 0300 244 1093 for more information.   

Mortgage to Shared Equity Scheme

Information:

what is equity?

‘Equity’ is the profit that you would have left after paying your mortgage, if you sold your home.  For example, if your home was worth £250,000 and your mortgage and secured loans added up to £120,000, you would have equity of £130,000.

Under the Mortgage to Shared Equity scheme, the Scottish Government will take a stake or share in your home, but you will still be the owner.  The process should take three to four months, but the time could vary, depending upon your circumstances.  This means that your mortgage or secured loan payments will be smaller each month.  Overall, your housing costs will be reduced to an amount that you can afford.

After two years, you can start to reduce the Scottish Government’s stake in your home.  You can buy back as much of the equity as you can afford and as often as you want.  You start the buying back process by writing to the Scottish Ministers, telling them that you wish to reduce their stake.  In most cases, the Government will expect you to buy back all of your equity within 10 years, as long as you are in a position to do this. 

Paying off the Government’s equity stake 

Information:

buying back the equity example

In this example, you will buy back the Government’s stake in your house in two instalments several years apart.

First equity buy-back

Say your home is valued at £130,000 and the Scottish Government’s equity stake is 30%.

If you want to buy back half of the equity stake (15% of your equity) this will cost you 15% of £130,000, which will be £19,500.

Because you have now bought back a share of your home, your stake in the home will increase and the Scottish Government’s share will reduce.   After this first buy back your stake will now be 85% and the Government’s stake will be 15%.

Second equity buy-back

If, a few years later, you want to buy back the rest of the equity owned by the Scottish Government, your home will have to be valued again before you will know how much this will cost you.   If the value of your home has increased to say, £150,000, the Scottish Government’s equity stake will now be worth 15% of the new valuation of your house.  This will be 15% of £150,000, which is £22,500.

In this example then, it will cost you £22,500 to buy back all the remaining equity owned by the Scottish Government.

The amount of money that you need to pay to buy back the Scottish Government’s stake could change over time.  If the value of your home increases, you will have to pay a larger amount to buy back the stake.  If the value decreases, you will pay a smaller amount. See the Information box buying back the equity example for more details of how this works.

During the Mortgage to Shared Equity scheme you will need to pay back:

  • the money required to buy back the share of the equity stake;
  • your own legal costs; and
  • the legal costs charged by the Scottish Government for returning the share to you.

If you do not buy back the Scottish Government’s equity stake on time, they can charge interest on the amount owed, from the date it is due to be paid, up to when you pay it off.  If the Scottish Government gets a court decree on the money owed, interest is payable before and after the court decree.

Applying to the Home Owners’ Support Fund

To find out if you are able to join one of the Home Owners’ Support Fund schemes, look at:

  • the general qualifying rules that apply to both schemes; and
  • the special rules for the scheme that you want to use.

Common rules for joining both schemes

You will be able to join either scheme if:

  • you have been unable to agree with your lender how to manage your arrears;
  • you have received advice about your overall financial situation from an independent money adviser;
  • you have not made the full monthly payments on your mortgage or secured loan for at least three months;
  • your arrears must be at least equal to one monthly payment in total;
  • you must not be able to get help through another UK Government support scheme, such as Support for Mortgage Interest (SMI);
  • Information:

    maximum levels

    Your independent money adviser will be able to give you up-to-date information on what maximum levels apply to your home.

    If you have particular housing needs because of a disability, you may be able to get help, even if the value of your home is above the maximum level.

  • your home must be valued at no more than the maximum level set for its size and the area where you live (see maximum levels in the information box);
  • this must be your only or main home;
  • your home must be in a reasonable state of repair (see the later section Repairs);
  • you must want to keep living in the home and have lived there for the past 12 months; and
  • you must not have more  than £2,000 ‘capital’ if you are under 60 years of age, or £4,000 if you are 60 years of age or older.  (For what is included in ‘capital’ see the next section).

What does ‘capital’ mean?

Information:

Mortgage to Shared Equity extra rules

There are three extra rules you must meet, if you want to join the Mortgage to Shared Equity scheme.

Rule 1

You must have 20% or more equity in your home.

Rule 2

You must have a capital and interest repayment mortgage (check this with your lender).

Rule 3

You must not have a trust deed or be bankrupt.

‘Capital’ can include things like:

  • cash;
  • savings;
  • money in bank or building society accounts;
  • premium bonds;
  • stocks and shares;
  • unit trusts;
  • fixed term investments;
  • endowment policy pay-outs;
  • redundancy payments;
  • pension lump-sum payments; or
  • equity in any other property you own. 

If you are not sure whether you have other kinds of capital that could affect your application, contact us for advice.

Repairs

If you are applying to join the Mortgage to Rent scheme, your home will be surveyed to see if essential repairs are needed. The Scottish Government will pay for these repairs. But if the cost is likely to be more than £8,500, you may not be able to take part in the scheme unless someone is prepared to pay the extra costs over £8,500. This could be you, your future landlord, your lender or someone else with an interest in your home.

If you are applying to join the Mortgage to Shared Equity scheme, your home must be above the ‘tolerable standard’. This means that it must considered fit enough to live in. If it does not meet this standard, your application will be considered for the Mortgage to Rent scheme.

Shared equity or shared ownership?

You cannot join the Mortgage to Shared Equity scheme if you have bought a shared ownership or a shared equity house. You can apply to the Mortgage to Rent scheme.

Equity and Mortgage to Rent

Important:

effect on benefits

If you do receive any profit after your home is sold, check if this will have any impact on your entitlement to benefits, for example Housing Benefit or the housing costs element of Universal Credit. This is because there are rules on the amount of capital you can have, and still get benefits. Contact us for advice.

If you are unsure what equity is, see the earlier information box What is equity? in the earlier section Mortgage to Shared Equity Scheme.

If you have equity and join the Mortgage to Rent scheme, you will normally be able to keep some of the profit (but see the earlier section Repairs).  After secured lenders or others with an interest in your home have been repaid:

  • you can keep £11,360 if you are under 60 years old; or
  • you can keep up to £17,040 if you are 60 or over.

If there is any extra money left over, it will be used to fund the scheme.

Can I still get help if I have negative equity?

Information:

what is negative equity?

Your home is in ‘negative equity’ if the money that would be raised by selling it would not clear all the loans secured on it. For example, if your home is worth £100,000 and the mortgage and secured loans add up to £120,000, you would have negative equity of £20,000. This is also called a ‘shortfall’.

See our fact sheet:

Negative equity in your home.

 

If your home is in negative equity, you may only get help from the Mortgage to Rent scheme.

If you have negative equity but are interested in the Mortgage to Rent scheme, the Government will ask you to get the shortfall agreed with your lender.  You might want to ask your money adviser to help you with this.  If the lender states in writing that they are willing to accept the shortfall, you can carry on with your application in the normal way.  If they are not willing to help, you will not be able to join the scheme and will have to look for other options to deal with your mortgage arrears.  Your adviser may be able to help you with this.  Contact us for advice.

The application

You need to complete an application form with the help of an approved money adviser and provide a letter confirming that you have taken independent money advice. You cannot apply until you have sought the advice of a money adviser. See the Useful contacts section at the end of this fact sheet for information about how to find a money adviser. Make sure you provide all the information asked for, otherwise your application will not be accepted. If you need extra help to fill in the form, phone the Home Owners’ Support Fund helpline on 0300 244 1093, or email hosf@gov.scot.

After the application

Information:

paying for legal costs

If you join the Mortgage to Rent scheme, you may have to pay for some of your legal costs. Ask your money adviser if this is likely to be the case.If you take part in the Mortgage to Shared Equity scheme, you will have to pay for your own legal advice and legal costs. You will also have to pay for any legal costs charged by the Scottish Government for returning the share to you during the scheme.

Once you have sent your completed form and all the supporting information to the Scottish Government, they will make a decision about whether to go further with your application. This will involve arranging to get an up-to-date valuation of your home. They will also use the survey to check whether any repairs are needed.

  • The Scottish Government will write to you explaining their decision.
  • If you are applying for the Mortgage to Rent scheme, your future landlord will want to visit your home and carry out various checks. Solicitors will carry out any legal work that may be needed.
  • If you are applying for the Mortgage to Shared Equity scheme, your money adviser will work out what your income and outgoings are and what you can afford to pay to your mortgage. They will send this information to the Scottish Government. If, having looked at your financial situation, your money adviser does not think that you can afford the Mortgage to Shared Equity scheme, they can make an application to the Mortgage to Rent scheme, if that is what you wish.

Help with rent

Extra advice:

the 'bedroom tax'

Your council or housing association may reduce the amount of Housing Benefit you get if they consider you have more bedrooms than you need. If they do, they may make up the difference with a Discretionary Housing Payment. Contact us for advice.

If you become a tenant through the Mortgage to Rent Scheme and you meet the general rules for Housing Benefit, you may be able to get help with your rent. Ask your local council housing department for an application form. If you have any problems with your Housing Benefit application, we may be able to help you. Contact us for advice.

SMI after a Shared Equity loan

If you get a Mortgage to Shared Equity Scheme loan to make your mortgage payments more affordable, and you have been getting help with your mortgage from SMI, you may still get this help. However, it will be reduced to reflect the size of your remaining mortgage.

Support for Mortgage Interest (SMI)

Extra advice:

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 claim Universal Credit, the DWP will normally pay at least some of the interest on your mortgage or secured loan, as long as you do no paid work. The rules about how much help you can get from Universal Credit 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 payment 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 to 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.

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.

Help from SMI

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?

Information:

what is 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 Waiting period before SMI starts 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.

You cannot normally claim for help with:

  • 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 buy 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);
  • housing 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 what is 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.

Waiting period before SMI starts

Extra advice:

benefit claim made before 5 January 2009

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

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 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.

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, the 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 is made (for example, if you or your partner are blind, or receive Attendance Allowance, Disability Living Allowance or Personal Independence Payment because you need care). Contact us for advice.

Claiming SMI

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 contacts section at the end of the fact sheet.

How long will I get help with my mortgage interest?

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 decision of the DWP.

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 benefit.

Lender threatening court action

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.

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 schemes

As well as the Home Owners’ Support Fund, which is run by the Scottish Government, there are other schemes run by mortgage lenders and private companies for profit.  These are generally called ‘sale and rent back’ schemes, but might also be known as ‘mortgage rescue’ schemes.

The Financial Conduct Authority (FCA) (known as the Financial Services Authority before 1 April 2013), 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.

By law the company will need to have a complaint handling procedure, which they should tell you about.  If you have a complaint and you are not happy with the company’s final response, or have not heard from them after eight weeks, you can ask the Financial Ombudsman Service to look into it.  See Useful contacts at the end of this fact sheet.

 

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

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 less 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.you a quick sale, contact us for advice.

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.

Useful contacts

Citizens Advice Scotland
Phone: 0345 404 0506
www.cas.org.uk

Financial Conduct Authority (FCA)
Phone: 0800 111 6768
Email: consumer.queries@fca.org.uk  
www.fca.org.uk

Financial Ombudsman Service (FOS)
Phone: 0800 023 4567 or 0300 123 9123
Email: complaint.info@financial-ombudsman.org.uk  
www.financial-ombudsman.org.uk

How to find an independent money adviser
This Scottish Government website has a list of approved agencies you can choose from.
www.scotlandsfinancialhealthservice.gov.uk

Jobcentre Plus
New benefit claims
Phone: 0800 055 6688
www.gov.uk/contact-jobcentre-plus  

Keeping your Home
Scottish Legal Aid Board and Shelter website giving advice to homeowners.
www.keepingyourhome.co.uk

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

Money Advice Scotland
Phone: 0141 572 0237
www.moneyadvicescotland.org.uk  

Pension Service
Help making a claim
Phone: 0800 731 7898
www.gov.uk/contact-pension-service

Scottish Government
This Scottish Government has information about the Home Owners’ Support Fund, a list of approved agencies and help with your mortgage.
Phone: 0300 244 1093 (Home Owners' Support Fund)
Email: hosf@gov.scot   
www.gov.scot