Can benefits pay your mortgage? (3 Pointers)

This blog looked at whether a person receiving benefits can also use these towards paying their mortgages. It was clarified that only the interest amounts can be met with the benefit-attached Support for Mortgage Interest (SMI) allowance. 

The different benefits which help a person qualify for the SMI assistance and the different mortgages/loan situations an SMI is applicable for were also illustrated. Some common queries surrounding this issue are also addressed later on in this blog. 

Can benefits pay your mortgage? 

Yes, welfare benefits can help with mortgage interest payments. But benefits by themselves can’t pay your mortgage principal amount. Receiving benefits can make you eligible for support that can assist you to pay off your mortgage interest. 

Here we will first discuss how government help can be received for mortgage interest payments and under what conditions. Certain benefits need to be claimed to be eligible for this assistance. 

Then we will look at situations in which assistance may not be forthcoming or difficult to claim. 

What support can I get to pay my mortgage interest? 

The composite of all support that you could possibly receive is called the Support for Mortgage Interest (SMI) payments. These are given to help with interest payment on any loans you have taken to purchase a home or any mortgage you have taken out. 

It can also be given for loans that are taken for the purpose of home repairs and refurbishment, or making the home more disabled friendly. It does not contribute towards the repayment of the actual loan/mortgage. 

This allowance is given in the form of a loan. This loan needs to be repaid with the concurrent interest accumulation, if the mortgagee dies and the house passes to his/her heirs/family or if he/she sells the house at a later date. 

The amount of SMI you will get is 2.09% of the loan/mortgage capital amount/principal amount. The interest on the SMI loan itself is charged at around 0.6% of the SMI loan amount.

SMI is often considered a good option to pay back mortgage interest, because the rates are reasonable and the payback time is also fair (quite a bit longer compared to traditional loans). 

You don’t have to pay back the benefit payments you receive for services, repairs and other additional home expenses and the terms are realistic, practical and fair. 

If you have any extra money left over after paying off the loan or the principal amount for the mortgage, then it will be frozen by the DWP, to pay off the SMI loan. 

But in case, your finances are extinguished after paying off the mortgage/loan, then the DWP will write off the SMI loan, until the house is sold to another person, or the owner dies and it passes to someone else in the family. 

You must be in receipt of certain benefits to qualify for the receipt of SMI assistance as well. This will be explored in the following section. 

Benefits you must be in receipt of to claim SMI 

In order to claim SMI to help with your mortgage interest payments, you need to be in receipt of one or more of the following benefits. 

Legacy Benefits: 

• Income based Jobseekers’ Allowance (JSA)

• Income based Employment and Support Allowance (ESA)

• Income Support 

New Framework: 

• Universal Credit

• Pension Credit 

In the case of the legacy benefits such as income based JSA, ESA and Income Support, the claimant is eligible to receive SMI payouts if they have been receiving these legacy benefits for at least 9 months i.e. 39 weeks. 

The same applies for Universal Credit. If the claimant has been in receipt of Universal Credit for 9 months, they can claim SMI. This period is known as the ‘qualifying period’ which is mandatory if you are to be eligible for SMI. 

In addition, there will be a time lag before you start receiving your SMI payouts, either due to processing or vetting etc. This is the ‘waiting period’ which precedes the actual start of receipts. 

If you are receiving Pension Credit, then you can bypass all these restrictions. You will start receiving SMI payment immediately upon claiming. 

The claimant must remember that if you are receiving Universal Credit, you will have to show that you are out of work. 

Otherwise, this component is not applicable. SMI is included under the Universal Credit housing post payments, which are only given if the claimant is not receiving any employment remuneration.

In addition, by default if you are in receipt of a high income and don’t qualify for these welfare benefits or receive only some which are independent of income, then you cannot receive an SMI. 

It is not meant for individuals who have high/sufficient finances per month. If you are receiving income based JSA, ESA, Income Support, and Universal Credit, you can get SMI loans of upto 2.0-2.9% of your mortgage/loan upto a maximum limit of £200,000.

For Pension Credit, the maximum amount you can get SMI interest on is £100,000, unless you had begun receiving or made the claim for Pension Credit within a span of 3 months after your other benefits expired/phased out/terminated post reaching the State Pension age.  

If the claim for Pension Credit has been made within this time limit, then the SMI interest limit will also be raised to £200,000 for Pension Credit beneficiaries. 

What does Support for Mortgage Interest (SMI) help with?

So while the name of the government support may only mention mortgages, this is not the only way in which this assistance is given nor the only purpose for which this aid is extended. 

The SMI helps to pay off interest accrued for any type of capital taken on credit. These include the following: 

• SMI is given to pay interest on an existing mortgage

• To pay interest on a new mortgage taken

• To pay the interest on a loan taken to pay the principal amount of the mortgage itself

• For interest payments towards loans taken from building societies or community loans e.g. Islamic society loans

• For interest payment on a new loan taken to buy another home, or another part of the same home e.g. adjoining land

• SMI can cover interest payments for loans taken for refurbishment, repairs of the home or installing disabled friendly equipment/changes. 

• SMI also covers interest payments for loans taken to meet legal expenses e.g. stamp duty associated with purchasing property. 

Remember, SMI only covers the interest on the mortgage/loan and does not contribute towards paying off the loan amount itself. 

This blog looked at whether a person receiving benefits can also use these towards paying their mortgages. It was clarified that only the interest amounts can be met with the benefit-attached Support for Mortgage Interest (SMI) allowance. 

The different benefits which help a person qualify for the SMI assistance and the different mortgages/loan situations an SMI is applicable for were also illustrated. 

If you have any queries, comments or suggestions, please feel free to contact us and leave a message. We welcome your input. 

Frequently Asked Questions (FAQs) – Can benefits pay your mortgage? 

Can the SMI cover my mortgage interest arrears i.e. backlog? 

No, the SMI is expressly not to be used for the payment of interest that has accumulated in the past. 

Past payments must be made on your own finances whether from your income, savings or taking another loan, whether from a bank or from family and friends. 

This may become necessary if you don’t have enough finances or liquidity to pay off past arrears. Local citizens’ councils can help you understand what the best way forward might be. 

For further information you may refer to – Deciding if you should apply for SMI – Citizens Advice. If you have delayed in making your SMI claims, you are eligible to receive backdated payments, from the time when you are entitled to receive them. 

What happens to the SMI allowance if I go bankrupt or cannot pay the mortgage? 

If you are already bankrupt or showing signs of bankruptcy, then it’s unlikely that you will ever receive an SMI payout. If you already are receiving an SMI loan, then you are asked to repay it sooner in the event that you do go bankrupt, whilst in receipt. 

This is also applicable if you are taking an SMI loan and at the same time receiving loans to pay off pre-existing ones e.g. from family or friends or what is known as an ‘Individual Voluntary Arrangement’(IVA). 

For more information pertaining to bankruptcy and its effect on SMI payments, please refer to – Deciding if you should apply for SMI – Citizens Advice. 

How much SMI will I receive if I am a joint owner with my partner/spouse etc.? 

You can still receive benefits under a shared ownership situation. The total principal mortgage amount will be split between the owners and each owner will receive their share of the SMI loan payout to pay mortgage interest on their portion. 

If one of the owners die, then the living partner/spouse will have to take on the entire mortgage repayment and the will receive the entire SMI loan for interest payment as well. 

If the living owner is a spouse, they don’t need to repay the SMI loan- it will pass on to the heirs. 

But if the owner is any other family member other than a partner or spouse, they will have to repay the SMI loan on a priority basis, before spending the money and anything else. 

The owner may also choose to sell the house and transfer the SMI loan to another property. This is also a possibility, if one half of a shared ownership dies or forfeits on their obligations. 

For more information you can refer to – Support for Mortgage Interest (SMI) (moneyhelper.org.uk). 

Will my creditworthiness or benefits be affected if I take SMI? 

No, your credit score does not depend and in turn does not impact your receipt of SMI loans. Receiving an SMI loan will also not affect your receipt of benefits. 

But if you get other loans from institutions like banks, cooperatives or even personal loans, your ability to repay, your repayment punctuality and your liquidity will affect your credit score. 

Depending on the amount that is given to you as loan and depending on the quantum that is given to you i.e. as a one-time payment or  in installments, the inflow of money will affect the benefits that you receive, because they are either counted as income/savings/capital etc. 

How will my savings be affected if I take an SMI loan to pay mortgage interest? 

In the first instance, the SMI loan will not impact your receipt of benefits. But if you get loans from banks, cooperatives or from family and friends in the form of an IVA, then the loan amount could affect your benefits. 

For example, if you receive the loan as a single payment, then your savings could exceed the maximum amount allowed for receipt of certain benefits. 

In the case of income-based JSA, ESA, Universal Credit and Income Support, if your savings exceed £6,000 because of the loans you took, you may receive a reduced benefit. 

Savings between £6,000 and £16,000 can lead to reductions in benefits. Crossing the £16,000 threshold may even nullify your eligibility for the benefit itself. 

For Pension Credit, if your songs exceed £10,000 as a consequence of the loan amount being transferred to you, then you may lose eligibility. The range here for deductions in benefits are savings between £6,000 and £10,000. 

If you lose the benefits themselves, it may be harder or even impossible to claim SMI. 

Then you may have to utilize your savings to pay off your SMI loan if you have received it, or to pay off other interest payments on existing loans/mortgages. 

In either case, dipping into your savings can actually boost your benefits because, if your savings fall below the above mentioned limits, then your eligibility for benefits and greater concessions increase consequently. 

Also keep in mind that any income from rentals or income from work will either reduce or completely cut you off from receiving benefits like Universal Credit. 

To understand this topic further, please refer to – Support for Mortgage Interest (SMI) (moneyhelper.org.uk). 

References: 

1. Government help if you can’t pay your mortgage. (n.d.). MaPS. Retrieved December 14, 2021, from https://www.moneyhelper.org.uk/en/homes/buying-a-home/government-help-if-you-cant-pay-your-mortgage
2. Deciding if you should apply for SMI. (n.d.). Www.citizensadvice.org.uk. Retrieved December 14, 2021, from https://www.citizensadvice.org.uk/benefits/support-for-mortgage-interest-smi/support-for-mortgage-interest-smi/deciding-if-you-should-apply-for-smi/
3. Can I claim for help paying my mortgage? (n.d.). Shelter Cymru. Retrieved December 14, 2021, from https://sheltercymru.org.uk/get-advice/paying-for-housing/universal-credit/can-i-claim-for-help-paying-my-mortgage/
4. Support for Mortgage Interest (SMI). (n.d.). GOV.UK. Retrieved December 14, 2021, from https://www.gov.uk/support-for-mortgage-interest/what-youll-get
5. Support for Mortgage Interest (SMI). (n.d.). GOV.UK. Retrieved December 14, 2021, from https://www.gov.uk/support-for-mortgage-interest/eligibility
6. Support for Mortgage Interest (SMI). (n.d.). MaPS. Retrieved December 14, 2021, from https://www.moneyhelper.org.uk/en/benefits/benefits-to-help-with-housing-costs/support-for-mortgage-interest
7. Understanding Universal Credit – Housing. (n.d.). Understanding Universal Credit. https://www.understandinguniversalcredit.gov.uk/new-to-universal-credit/housing/
8. Benefits to help pay your rent, Council Tax or mortgage/home loan – Turn2us. (n.d.). Www.turn2us.org.uk. Retrieved December 14, 2021, from https://www.turn2us.org.uk/Benefit-guides/Care-homes-and-benefits/Benefits-to-help-pay-your-rent-Council-Tax-or-mort
9. Support for Mortgage Interest. (2015, November 9). Nidirect; nidirect. https://www.nidirect.gov.uk/articles/support-mortgage-interest
10. Bentley, D. (2020, April 28). Can Universal Credit cover your mortgage? This is how DWP decides if you qualify. BirminghamLive. https://www.birminghammail.co.uk/news/midlands-news/universal-credit-mortgage-dwp-rules-18159578