Executive Summary

In 2016 Support for Mortgage Interest changed. It changed from being a benefit to a loan and the waiting time to access it increased from 13 weeks to 39 weeks.

In light of Covid-19 and the pressure on people’s incomes, we are calling for the waiting time to be reduced. Making this change now will help create an environment by providing a longer-term safety for homeowners. This will help people to able to stay in their homes, while dealing with financial pressures.

Mortgage Payment Holidays

At the start of the Covid-19 crisis, the Government introduced mortgage payment holidays. This allowed consumers to take a 3 month break from paying their mortgage. Lenders responded by adapting systems and processes in record time. Between late March and late June 1.9 million mortgage payment holidays were taken up by customers impacted by Covid-19.

According to research[1] carried out for the BSA by YouGov:

• 90% of those who had taken a mortgage payment holiday had found it helpful.
• 18% of people who had taken a mortgage payment holiday wanted to extend it beyond the initial 3 months
• 27% of those who had taken a mortgage payment holiday were either not at all or not very confident about making mortgage payments after the holiday
• 79% of those who had taken a mortgage payment holiday were concerned about their household finances because of Covid-19

The Financial Conduct Authority (FCA) announced that the 3 month mortgage payment holidays would continue to be available until 31 October 2020. After this date normal forbearance options will continue to be available, such as reducing repayments or moving to interest only. While forbearance might appear to be an attractive option, the FCA has stated that extended forbearance may not be in the customer’s best interest since the aim of forbearance should be to recover the loan as soon as is reasonably possible.

Reducing the waiting time from 39 weeks to 13 weeks

In 2016 the Government extended the waiting period before a working-age borrower could get a Support for Mortgage Interest (SMI) loan from 13 to 39 weeks. In light of the Covid-19 crisis we are calling for the waiting time to be reduced, to help homeowners stay in their home through short-term pressures on their finances.

If the waiting period is maintained at 39 weeks, borrowers will be more than six months in arrears with their mortgage. At this point it is likely to be far more difficult for them to resolve their financial situation.

The prime policy objective is to avert the risk of repossession, as far as is reasonable. While the Government assumption is that the large majority of claimants go back to work within nine months, given the scale of the predicted economic downturn, this may not be practicable.

Having a long term safety net for home owners, and setting this up before people need it, will help ensure more people are able to stay in their home and rebuild their finances as the economy recovers.