How Do Support for Mortgage Interest Loans Affect Other Property Finance?

Support For Mortgage Interest (SMI) is a loan from the Department of Work and Pensions (DWP) which helps pay towards the interest on a mortgage or another home loan.
Previously SMI was a benefit, but now it is a loan. This change occurred on 5th April 2018 and, since then, applications have fallen dramatically.

Below, we discuss how changes to SMI have affected the rest of property finance, as well as the scale of how the government currently helps with mortgages.

Why Are Less People Applying?

According to figures from a freedom of information request, only 1,030 homeowners have made new claims for SMI between its change in April 2018 and July 2019. This means only a third of those eligible sought support in that period.

Along with a fall in the number of applicants came a dramatic decrease in those who were eligible for any form of help towards mortgage interest rates.

Less than two years ago, 100,000 people were eligible to claim help towards their mortgage interest rates, with that figure now sitting at 20,000 following changes to the benefit.
The fact that SMI has changed from a direct benefit to a loan has put many possible applicants off.

How is This Affecting Property Finance?

So far, the changes to SMI hasn’t had a massive effect on property finance, but the sample size has only been over the course of a year.

However, the decrease implies that there may be fewer mortgage applications in the future from those who are under financial strain or are vulnerable.

Fears initially arose when the SMI benefit loss was announced, with some analysts stating it would result in a rise of arrears and repossessions. However, this hasn’t been reflected in public figures.

The DWP commented on its wide-reaching effect, stating that even the majority of claimants who did not receive the loan are still meeting their mortgage commitments:

“Support for Mortgage Interest (SMI) changes provide a safety net for homeowners from repossession and make it fair to the taxpayer who funds it.

“Mortgage lenders tell us the majority of claimants who did not take out an SMI loan are meeting their mortgage commitments.”

Of course, this is something to keep an eye on, especially since the change has only been in effect for 19 months.

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Article By Ben Lloyd

November 13th, 2019

Ben is the Director and Co-Founder of the Pure Group and Managing Director of Pure Property Finance.

Following a career in Barclays, where Ben was in the real estate finance team for 8 years, he decided that the market needed a more forward-thinking type of commercial brokerage so founded Pure Commercial Finance (now Pure Property Finance), the first company within the Pure Group.

Ben has extensive experience across the real estate sector and has participated in over £2bn of real estate transactions during the course of his career.

Ben oversees the general strategy at Pure Group and works with the senior leadership team to drive the Group forward. Ben is also on the Executive Committee of FIBA.

See more articles by Ben

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