What is SMI and how has it changed?
Support for Mortgage Interest (SMI) was a benefit paid to homeowners to help with the interest costs on a mortgage or loan. It ended on 5 April 2018, and was replaced with the offer of an SMI loan.
The Department for Communities wrote to everyone who currently receives SMI. The letter explained that SMI in its current form is ending and that you will no longer receive this benefit to help with your housing costs after 5 April 2018.
It also explained that you can now apply for a loan to help with your mortgage and loan costs. A company called SERCO will telephone you to talk more about the option of applying for a loan.
If you decide to accept the offer of a loan, you may eventually have to pay back the money you receive, along with any interest on the loan.
Applying for the loan
SERCO will try to call everyone who receives SMI to discuss the changes. They will explain what you must do if you want to apply for a loan and will talk about other ways you can try to manage your mortgage and loan costs.
Are there any costs?
You won’t have to pay any fees to set up the loan, but you will have to pay interest on what you borrow. The interest will be set at quite a low rate, currently 1.7%, but this could add up to quite a bit over a number of years.
Example: Francis receives £198 Support for Mortgage Interest every month. He takes up a loan in April and gets this same amount for three years. After these three years, his health improves and he takes up a new job. Over the three years, Francis has borrowed £7,722. Once interest is added, his repayment amount is £7926.12.
Taking on an SMI loan does not affect any other benefits, e.g. pension credit. This includes means-tested benefits.
Before you speak to SERCO
There are a few things that you should find out as soon as you get your letter. You should:
- contact any mortgage or secured loan lenders to find out how much is left on the balance of your loan, and how many years you have left to pay this, and
- find out how much Support for Mortgage Interest you are currently receiving, either by checking letters from the Jobs and Benefits Office or phoning your claim office.
If you live with anyone else who is named on the property deeds, you will need to talk to them about this change. All owners who live in a property must agree to accept the loan.
Repaying the loan
You don’t have to make regular repayments towards the loan. The government will only expect this money back when:
- You sell the property, or
- You transfer the property to someone else, or
- You die, or the last remaining person in your benefit claim dies.
The money that you owe will normally be registered as a charge on the property. This means that the money will be paid back out of the proceeds gained from selling the property or from your estate. However, if you want, you can make voluntary repayments to clear the loan before this happens. Any voluntary payments must be of at least £100.
What happens if there’s not enough equity to pay back the loan?
When you sell your property, you may have other secured debts which need to be paid off, such as a remaining loan, rates arrears or a mortgage. If there is not enough equity in your property to repay all or any of the loan after certain other debts have been cleared, the amount owed will be written off.
However, if you sell the property for less than its market value and there would have been equity to repay the loan if you had sold it at the market value, the Department could decide to treat you as though you did sell the property at the higher price. If this happens, there is a risk that the Department will insist you pay the loan, but you could challenge this decision.
Not sure what to do?
Taking out another loan on a property is a big decision, and it’s best to get advice before you agree to take on any more debt. You can call our dedicated housing advisers if you’d like some advice on your options. Our advisers can discuss your situation with you and give you more information about ways to deal with debt.