Your Mortgage and Benefits

For most people, a mortgage will be the major financial commitment of their life. Moreover, in most cases, it’s a commitment that usually has to be maintained uninterruptedly for 10 or 20 years. Failing to make payments on the mortgage can mean the loss of years of effort. For this reason, how the mortgage will be affected is often one of the chief concerns of anyone who experiences redundancy.

If you've recently lost your job and are worried about managing your mortgage and other financial commitments, you may find it helpful to use our free Redundancy Action Plan.

Unfortunately, most people who have just been made redundant and look to the government for help in keeping up with the mortgage payments are likely to be severely disappointed. Unless you live in a tent, the help available is extremely limited and comes with many conditions attached.

Support for Mortgage Interest (SMI)

If you get Jobseeker’s Allowance, Pension Credit or Income Support, the government will help you pay the interest on your mortgage through a scheme called Support for Mortgage Interest (SMI). But the help doesn’t begin until 39 weeks after you begin receiving benefits. Moreover, you are only eligible for this assistance if your mortgage is no greater than £100,000 in value. As the average British home now costs more than this, this is of no use to most home-owners. The law was framed in 1995 when house prices were much lower, but the threshold has not been adjusted since then.

Restrictions on SMI Eligibility

There are other restrictions on the help you can get. For one thing, the government will only help you with the interest on your mortgage debt, not the repayment of capital. If you aren’t sure about how much of the payments you make cover interest only, you can ask your mortgage provider to tell you.

Second, SMI payments will only cover you if you took out the mortgage before you went on benefits. If you extended the mortgage after going on benefits, you will only get help for the part taken out before, unless the newly extended mortgage was designed to pay for essential repairs or maintenance.

Third, your application for mortgage interest support may be rejected if your home is in a very expensive area or the government thinks it is too large for your needs.

Redundancy Action Plan

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Applying for and Receiving Help With Your Mortgage Payments

You can apply for SMI by filling out the form MI 20 which you will get from the DWP. Your mortgage lender will have to complete part of the form. The government runs something called a Mortgage Interest Direct Scheme which allows lenders to receive the mortgage interest payments from the government directly. Not all mortgage lenders participate in it, however. If yours doesn’t, you will receive the money with your benefit payments instead.

Note that the amount which will be paid for you is based on the standard interest rate which prevailed at a time chosen by the government. What you actually pay may be higher or lower than this depending on the terms of your mortgage agreement; if it is higher, you will have to make up the difference yourself.

Changes to SMI in the Offing

The as it stands in 2008 is described above. From April 2009, however, things are due to change slightly. The threshold mortgage value above which you will be ineligible for assistance rises to £175,000. Even better, help becomes available after 13 weeks on benefits, rather than 39 as at present. The support will be time-limited to two years, however. At present, there is no time limit once the assistance kicks in.

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Mortgage Interest Run-on

If you start a new job, and have been getting help with your mortgage previously, the government will continue to pay your mortgage interest for four weeks after you begin work.

Mortgages and Benefits – Conclusion

For anyone not yet reduced to living in a tent, the mortgage help available from the government is rather limited. From 2009, though, some of the restrictions will be eased slightly, and the benefit should prove more generally useful to those who find themselves struggling with mortgage payments following a redundancy.

The Next Step

Now that you have read through the advice above, you might want to put it into practice. Our Redundancy Action Plan lets you tell us about your situation and get a personalised step-by-step plan for dealing with redundancy. Covers finances, job hunting, benefits, and wellbeing. Try it now →