Support for mortgage interest

Government repayable loan can help homeowners who claim benefits to pay interest on mortgages or loans taken out for repairs or improvements.

This content applies to England

SMI is a loan (April 2018)

The help provided to homeowners is commonly referred to as Support for Mortgage Interest (SMI).

With effect from 6 April 2018, SMI is made as a loan from the government.[1] Prior to this date, SMI was paid as part of a claimant’s benefit award. An SMI loan does not replace SMI benefit automatically.

Broadly, eligibility for a loan payment under SMI remains the same as it was when paid as a benefit.

Transitional protection

SMI can continue to be paid as a benefit payment to existing claimants up to:[2]

  • 7 May 2018 where the DWP has been unable to contact the claimant

  • 5 November 2018, or later in limited circumstances where the DWP believes the claimant lacks capacity and the claimant has not accepted or refused the loan

Securing a loan

Claimants should be referred for independent financial advice about whether to proceed with the loan. A generalist or debt adviser can provide information on the consequences of accepting or not accepting a loan, but should not advise on whether the individual applicant should go ahead.

Other options may be available such as:

Existing claimants in receipt of SMI payments should have been written to before February 2018 explaining the change to SMI payments. They should also have received a phone call from Serco, an organisation working on behalf of the Department for Work and Pensions (DWP) to explain the changes and to discuss alternative options.

Signing up to an SMI loan

A claimant will be required to sign a charge form in order to secure the SMI loan against the claimant’s home. If the claimant’s partner is a joint owner they will also be required to sign the form.[3] This charge is registered at the Land Registry. If there are joint owners that are not the claimant’s partner, the claimant will be required to sign an equitable charge in respect of their beneficial interest in the home.[4] This charge is not registered at the Land Registry.

Who can get an SMI loan

A homeowner, or their partner can claim SMI for the home  which they normally occupy (or are treated as occupying) where they are:[5]

  • in receipt of a qualifying benefit

  • liable or treated as liable for ‘owner occupier payments’

Qualifying benefits are:[6]

  • universal credit (UC)

  • state pension credit

  • legacy benefits:

    • income support

    • income-based jobseeker's allowance (JSA)

    • income-related employment and support allowance (ESA)

When a claim for a qualifying benefit is made the claimant will be asked questions about their housing costs to find out if they are entitled to an SMI loan.

Liability incurred after becoming entitled to a qualifying benefit

It is not generally possible to get SMI on a loan taken on during a period, known as a ‘relevant period’, in which the person to whom the loan was made was:

  • entitled to state pension credit or a legacy benefit

  • living as a member of a family, one of whom is entitled to state pension credit or a legacy benefit

The exception to this is where the claimant or their partner was previously renting accommodation before buying the home and was entitled to housing benefit the week before the purchase, or the loan was:[7]

  • taken out or increased to buy a home better suited to the special needs of a disabled person

  • increased to enable the purchase of a new home which would allow a boy and girl aged over ten but under 20 to have separate bedrooms

  • was taken out to pay off an earlier loan (although any extra amount will not be covered)

Zero-earnings rule for universal credit claimants

A UC claimant will not qualify for help with interest payments if they or their partner have any earned income.[8] However, claimants in shared ownership properties can claim the housing costs element for their rental payments.[9]

Absences from home

Schedule 3 to the Loans for Mortgage Interest Regulations 2017 lists circumstances in which a homeowner will be treated as occupying accommodation even if they are not living there when SMI is being paid. These include studying, moving out for essential repairs and fleeing domestic violence. 

Owner occupier costs covered

The categories of loan that will qualify for SMI is wider for UC claimants than for claimants of legacy benefits or state pension credit. Claimants of universal credit can get an SMI loan for the following types of payments:[10]

  • interest payments on a loan secured on accommodation the claimant occupies as their home

  • alternative finance arrangements (for example, Islamic mortgages) in relation to the claimant's home

Legacy benefit and state pension credit claimants can get an SMI loan for the following types of interest payments:[11]

  • on a mortgage loan to purchase the home the claimant normally lives in or a remortgage to repay a previous loan

  • on loans for specified repairs or improvements (generally, those which are done to maintain the fitness of the home for human habitation, or to provide separate sleeping accommodation for members of the claimants family who are aged ten or over when the loan is taken out, or within a year of that date, and who are of different sexes)

SPC claimants can also get an SMI loan for alternative finance arrangements.

Capital limits

The upper capital limit of a mortgage or loan on which SMI may be made is £100,000 where the claimant:[12]

  • is in receipt of pension credit (unless they claimed help with housing costs when in receipt of income support, IBJSA or IRESA and claimed PC within 12 weeks of their previous benefit ending)

  • claimed a qualifying benefit before 5 January 2009

In all other cases, the upper capital limit is £200,000.

It may be possible for a working age applicant subject to the £100,000 limit to gain entitlement to the £200,000 limit by stopping their claim to a qualifying benefit and starting a new one. However, the applicant would have to wait for long enough for the linking rule (whereby new claims for benefit made within a certain period of a previous claim having stopped are treated as continuations of the old one) to cease and there would then be a new qualifying period.

Calculating the amount of SMI

The interest rate used to calculate the amount of SMI payable towards a mortgage or other qualifying loan is linked to the Bank of England published average interest rate for loans to households secured on dwellings. This rate is applied regardless of the actual interest rate payable on the claimant's mortgage or secured loan. The current rate is 2.09 per cent. The rate is adjusted whenever the published rate and the SMI rate differ by 0.5 per cent or more.[13] Check Gov.uk for any changes.

Non-dependant deductions

An amount may be deducted if there is a non-dependant living with the claimant.[14] This does not apply to universal credit claimants.

A non-dependant is an adult child, friend or relative living with the claimant (but not the claimant's partner, lodger or joint tenant). It is assumed that the non-dependant will make contributions towards the housing costs, whether such contributions are made or not.

Qualifying (waiting) periods

The standard qualifying period before an SMI loan can be paid to claimants is the later of:[15]

  • 6 April 2018

  • 39 weeks of entitlement to legacy benefits

  • nine months of entitlement to UC

For those in receipt of state pension credit there is no waiting period before help with housing costs is paid.

Where a legacy benefit claimant ceases to be entitled to a legacy benefit, but then becomes entitled again within 52 weeks, they will not need to satisfy the qualifying period in respect of that new entitlement.[16]

Payment of SMI loan

Payment of an SMI loan to help pay a mortgage is normally made direct to the lender. It is paid in arrears every month (universal credit) or four weeks (other benefits).[17] It will be paid to the claimant when the lender is not part of the mortgage payment scheme agreed with the DWP. Most lenders are part of the scheme.[18]

Duration of the loan

An SMI loan can be paid indefinitely.[19]

Unless the loan agreement is terminated, payment will stop if the claimant ceases to:[20]

  • be entitled to a qualifying benefit (although a further four weeks’ payment will be made where entitlement to a qualifying benefit ceases because the claimant becomes employed and that employment is expected to last for at least five weeks)

  • be liable (or treated as liable) to make owner occupier payments

  • occupy (or be treated as occupying) the relevant accommodation

  • the claimant does not comply with the terms of the loan agreement

SMI loan payments to a UC claimant will stop from the date the claimant or their partner has any earned income.[21]

Repaying SMI loan: rate of interest

The interest rate for repayment of an SMI loan is linked to the Office for Budget Responsibility’s forecast of gilt rate. The current rate is 0. 6 per cent. The rates may change on 1 January and 1 July each year. Check Gov.uk for any changes.[22]

The interest accrues monthly and is calculated as compound interest, ie interest will be charged on the unpaid loan and on the interest. An SMI loan will continue to accrue interest until it is paid off.

How SMI loan can be repaid

No regular repayments have to be made. The loan can be paid be paid back in full or in part at any time. The minimum amount that can be repaid at one time is £100 or the outstanding balance, if less.[23]

Any amount outstanding on the SMI loan will become due if:[24]

  • ownership of the property is transferred or assigned

  • the claimant dies and there is no partner or other member of the ‘benefit unit’ living in the property

  • the property is sold unless the outstanding amount can be transferred to another property

The money is to be paid from the claimant’s estate. If there is insufficient equity to repay the loan in full, any outstanding amount will be written off.

Transferring SMI loan to another property

From 15 March 2021 it is possible to transfer the SMI loan to another property without having to repay it when an owner occupier sells their home and purchases another property. 

In order to be able to transfer the SMI to the new property, the following conditions must be met:[25]

  • the owner occupier must inform the DWP that they are selling and request SMI to be transferred

  • the conveyancer or solicitor must give a written undertaking

The conveyancer or solicitor must give a written undertaking to:

  • remove the outstanding charge against the property that is being sold

  • transfer the outstanding amount to the SMI claimant’s conveyancer or solicitor

  • register a new SMI charge for the property that is being purchased

  • hold the outstanding amount of the SMI loan until completion

Any reasonable costs incurred by the conveyancer or solicitor in transferring the loan that are covered by the SMI will be added to the outstanding amount of the SMI loan, and will accrue interest.[26]

If the outstanding amount of the SMI is more that the equity in the property, the outstanding amount or charge refers to the equity.[27]

DWP Memo ADM 03/21 and Memo DMG 02/21 provide more information about how SMI can be transferred.

Homeowners who wish to transfer SMI to another property should seek independent advice.

Last updated: 19 August 2021

Footnotes

  • [1]

    Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [2]

    regs 19A & 20 Loans for Mortgage Interest Regulations 2017 SI 2017/725 as amended by reg 2 Loans for Mortgage Interest and Social Fund Maternity Grant (Amendment) Regulations 2018 SI 2018/307.

  • [3]

    reg 5(2)(a) Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [4]

    reg 5(2)(a) Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [5]

    Schedule 3 Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [6]

    reg 2(2) Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [7]

    para 3 Sch 1 part 1 Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [8]

    reg 3 (4) Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [9]

    Sch.5 Part 2 para 4 Universal Credit Regulations 2013 SI 2013/376, as amended by reg 2(14)(d) Universal Credit and Miscellaneous Amendments Regulations 2014 SI 2014/597.

  • [10]

    part 2 Sch.1 Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [11]

    part 1 Sch.1 Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [12]

    reg 11(2) Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [13]

    reg 15(5) Loans for Mortgage Interest Regulations 2017 SI 2017/725; Social Security (Housing Costs) (Standard Interest Rate) Amendment Regulations 2010 SI 2010/1811.

  • [14]

    reg 15(5) Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [15]

    reg 2 and reg 8 Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [16]

    reg 9 (7) Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [17]

    regs 7 and 17 and Sch.4 Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [18]

    reg 17(3) Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [19]

    reg 9 Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [20]

    reg 9((2) Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [21]

    reg 3(4) and 9(4) to (6) Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [22]

    reg 15(5) and (6) Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [23]

    reg 16(8) and (9) Loans for Mortgage Interest Regulations 2017 SI 2017/725.

  • [24]

    reg 16(1) Loans for Mortgage Interest Regulations 2017 SI2017/725.

  • [25]

    reg 16A Loans for Mortgage Interest Regulations 2017 SI 2017/725, as inserted by reg 2(5) The Loans for Mortgage Interest (Amendment) Regulations 2021 SI 2021/131.

  • [26]

    reg 16A(4) Loans for Mortgage Interest Regulations 2017 SI 2017/725, as inserted by reg 2(5) The Loans for Mortgage Interest (Amendment) Regulations 2021 SI 2021/131.

  • [27]

    reg 16A(5) Loans for Mortgage Interest Regulations 2017 SI 2017/725, as inserted by reg 2(5) The Loans for Mortgage Interest (Amendment) Regulations 2021 SI 2021/131.