Support for Mortgage Interest (SMI)

What is Support for Mortgage Interest (SMI)?

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Support for Mortgage Interest (SMI) will be paid as a loan. This must be repaid when you die, sell your home or transfer ownership of the property.

It used to be paid as a benefit, which you didn’t have to repay.

Can I get SMI?

To get Support for Mortgage Interest, you must be out of work or of State Pension age, and get:

  • Income Support
  • income-based Jobseeker’s Allowance
  • income-related Employment and Support Allowance
  • Universal Credit, or
  • Pension Credit.

There’s a 39-week waiting period from the time you claim SMI until your first payment is made.

This is unless you’re getting Pension Credit, in which case you can get help immediately.

If you’re on Universal Credit, this waiting period is nine assessment periods (equivalent to nine consecutive months).

If you’re receiving an eligible legacy benefit, you can work up to 16 hours a week before losing your entitlement to SMI.

However, if you’re on Universal Credit and have any ‘earned income’ you won’t qualify for SMI and you’ll have to restart your waiting period.

Even if you have previously declined an SMI loan, your claim can be backdated to the date you first became eligible.

If this date is before 6 April 2018, when SMI changed from being a benefit to a loan, then your claim will be backdated to 6 April 2018.

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If you’re not a homeowner but you rent your home, you can’t get SMI. However, you might be entitled to Housing Benefit or the Housing Costs element of Universal Credit.

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What you’ll get

The government will pay the interest on up to £200,000 of your mortgage. Or up to £100,000 if you’re getting Pension Credit.

The government will use a standard interest rate to calculate the amount they’ll pay.

This might mean it’s different to the interest rate on your mortgage. The government interest rate is variable, so it might go up or down over time.

The payments will usually be made directly to your mortgage lender.

There’s no help available to help repay the capital (the amount you originally borrowed) of your mortgage.

What might affect how much SMI I’ll get?

If you have adults living with you who don’t pay rent, it might reduce how big your SMI loan can be. This excludes your partner, but might include grown-up children.

To work out how much SMI you might be entitled to if you live with any other adults, use the free calculator on the Turn2us website

Facts about the SMI loan

  • There are no fees to set up the loan.
  • You don’t have to get a credit check to get the loan, and taking it won’t usually affect your credit rating.
  • SMI is usually cheaper than other credit options because interest charges are low.
  • It is more flexible than a normal loan as you don’t have to make regular repayments – unless you want to.
  • Interest will be added to the total amount you owe, until the loan is paid back or written off.
  • You won’t get a loan automatically - you have to choose to take one out.
  • The SMI payment is usually made directly to your mortgage lender.
  • SMI can be backdated to the date that you became eligible to claim it without any restrictions.
  • The loan is secured against your home. When you sell your home or transfer the ownership of it to someone else, you must pay back the loan out of any equity left over when your mortgage is repaid.

 

SMI for home improvement loans

You can also get SMI to help pay the interest of a loan you’ve taken out to cover:

  • Essential repairs or improvements to your home. For example,  insulation, repairing dangerous faults or adapting your home if someone in your household is ill or disabled.
  • Buying your ex-partner’s share in your home if you have separated.

How long can you get SMI for?

There’s no limit to how long you can claim SMI for.

If you were getting SMI as a benefit

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 transfer the SMI to the new property, the following conditions must be met:

  • 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

Transferring an SMI loan

If you’re getting an SMI loan and you want to move home, or the ownership of your property is transferred, you’ll need to repay the SMI loan with interest.

There are plans to allow you to transfer an SMI loan to a new property. This should come into force in early 2021.

Change to Support for Mortgage Interest for claimants moving home

The government will help Support for Mortgage Interest claimants to move home by allowing them to add the legal costs associated with transferring their claim to a new property to the value of their loan. The Northern Ireland Executive has been funded to replicate this change in Northern Ireland.

How is interest charged to your SMI loan?

The help you get to cover the cost of interest on your mortgage repayments is based on a Standard Interest Rate. This is currently 2.61% and can be subject to change. But you will be told if this happens. The following example assumes no change in this rate.

As the help you’ve received is now a loan, you will be charged interest. The longer you get help, the more interest you’ll be charged. This is calculated daily and can change. However it can’t change more than twice in any year.

Example of SMI and interest

Let’s say you receive £22 each week towards the interest on your mortgage. The total help you’ll have received in a year is £1,144 (£22 x 52 weeks). This, plus the interest you’re charged (currently 1.3%), is the amount of your SMI loan.

How much will an SMI loan cost?
Yearly
Outstanding loan at beginning of year
SMI loan payments made during the year
Outstanding loan owed at year end before interest
Interest charged on loan
Amount of interest added that year
Balance owed at the end of the year (Payments plus interest)
Cumulative interest charged on your SMI loan owed

Year 1

£0

£1,144

£1,144

1.3%

£8

£1,152

£8

Year 2

£1,152

£1,144

£2,296

1.3%

£23

£2,319

£32

Year 3

£2,319

£1,144

£3,463

1.3%

£38

£3,501

£70

Year 4

£3,501

£1,144

£4,645

1.3%

£54

£4,699

£114

Year 5

£4,699

£1,144

£5,843

1.3%

£70

£5,913

£184

Year 10

£10,928

£1,144

£12,072

1.3%

£151

£12,223

£632

Year 15

£17,574

£1,144

£18,718

1.3%

£238

£18,956

£1,559

Repaying an SMI loan

Interest will be added to the SMI loan each month at a rate set by the government – which might go up or down.

The interest charged is ‘compound’. This means each month’s interest will be included in the total ‘balance’ to calculate the next month’s interest.

You can choose to pay back the loan at any time. For example, if you find paid work and can afford to make repayments. Usually, the minimum amount you can repay each time is £100.

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The loan will usually have to be repaid when you die, sell your home or transfer ownership.

You’ll also have to repay the loan if you move home and can’t transfer the loan to the new property.

If you die and your house passes to your spouse or civil partner, the loan can be paid back when they die instead.

The Department for Work and Pensions (DWP) will take back the amount of loan you owe from the money your heirs get from the sale of your home.

What happens if I sell my home?

When your home is sold, if there isn’t enough money left over after your mortgage is repaid to pay back the SMI loan, the remaining amount will be written off. And the DWP will consider the loan to be fully repaid.

Instead of getting an SMI loan, can my mortgage lender help me?

If you’re having problems with making your mortgage repayments, contact your lender to find out what support they can offer. This could include a short payment ‘holiday’ or deferral to help you get over a temporary crisis or an extension of the term of your mortgage.

You could also look into options you might have to switch mortgages to get a better interest rate.

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Using your savings to repay the SMI loan

How much you have in savings will affect the benefits you’re getting to qualify for SMI. So, you must have less than £16,000 in savings or investments – or £10,000 if you’re getting Pension Credit).

Do you have between £6,000 and £16,000 in savings or investments? Or between £6,000 and 10,000 if you’re getting Pension Credit? Then the amount of benefit you’re getting now might be reduced.

If you use any savings to pay off your SMI loan, the amount you get in benefits might increase – if your savings fall below £6,000.

Asking friends or family for help to repay the SMI loan

If you have family members or friends who have their own income, you might want to ask them to lend you the money to pay back your SMI loan.

This could be a good option if the person you’ve borrowed the money from doesn’t charge you interest.

But always think carefully before you borrow from family or friends. And be sure you can pay back what you’ve borrowed within an agreed timeframe. If you can’t, it could affect your relationship with that person.

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Asking a credit union, bank or building society for a loan

You could ask a credit union, bank or building society for a loan. You could then use this to pay back your SMI loan.

A credit union, bank or building society loan won’t be secured against your home. So your home isn’t at risk if you can’t keep up with repayments.

Bear in mind, you would need to have a credit check. And a loan from a credit union, bank or building society is likely to have a higher rate of interest than the SMI loan.

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Moving to a different property

You could sell your home and buy a cheaper house. This would mean you could have a smaller mortgage – or you might not need to have a mortgage at all.

Remember to factor in the other costs of moving house, such as Stamp Duty and removal costs.

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Should I get an SMI loan?

Before you decide whether an SMI loan is the best option for you and your household, it’s a good idea to get professional advice.

Call us on 0800 138 7777 for free, impartial money advice. Lines are open Monday to Friday, 8am to 6pm and Saturday, 8am to 3pm (webchat only). Calls are free.

You can also get housing advice from these organisations: 

How to claim SMI

Find out more about making a new claim for SMI on the GOV.UK website

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