Mortgage Interest Support

If you’re struggling to keep up with your mortgage payments, you may be eligible for mortgage interest support. It’s known as Support for Mortgage Interest, or an SMI Loan.  

It’s a government benefit that helps people receiving certain income-related benefits, such as Universal Credit or Pension Credit, to pay the interest on their mortgage.  

In this guide, we’ll explain what mortgage interest support is, how it works, and how to check if you’re eligible. 

What is Mortgage Interest Support? 

Mortgage Interest Support is a loan that pays for all or some of the interest part of your mortgage payment, and it’s paid directly to your lender. It’s available to borrowers on certain benefits who are struggling with their mortgage payments.  

How Does Mortgage Interest Support Work? 

If you’re eligible for mortgage interest support, the benefit will pay the interest on your mortgage directly to your mortgage lender.  

You won’t receive any money yourself into your bank account, but rather the benefit will help you to manage your mortgage payments and avoid falling into arrears. 

There are two key things to be aware of: 

• The support is a loan, so you will be required to pay it back when you sell your property.  

• And interest will be charged on your loan in the meantime.  

The UK government uses their own interest rate to calculate the amount of interest that they will pay towards your borrowing.  

From May 2023 this is 2.65%.  

The support you will receive will be capped at this, so if your interest rate is higher than this you will still have to pay the difference.  

The amount of support you’ll receive depends on the interest rate on your mortgage and the amount you owe.  

The SMI benefit will cover interest on up to £200,000 of your mortgage balance, or up to £100,000 in some cases.  

If you owe more than this, you’ll need to pay the interest on the excess amount yourself. 

Support for Mortgage Interest is also available for loans that were used for home improvements or essential repairs. 

You will still be responsible for paying the capital repayment part of the mortgage.  

Eligibility for Support for Mortgage Interest (SMI) 

To be eligible for SMI, you must meet the following criteria: 

• Be out of work or of State Pension age 

• Be receiving certain benefits, such as Universal Credit, Income Support, income-based Jobseeker’s Allowance, or income-related Employment and Support Allowance. 

You can claim SMI whether you own a home or a shared ownership property. 

You must have also been receiving some benefits for a certain period of time before you will be eligible: 

Pension Credit - you can receive SMI when you start receiving Pension Credit  

Universal Credit - you must have received 3 months of Universal Credit payments before you can claim  

Income Support, Income Based Jobseekers Allowance or Employment and Support Allowance - you must have claimed for 39 weeks in a row 

If you meet these eligibility criteria, you should contact the relevant department in order to make an application.  

You can find out more about the eligibility criteria and how to apply on the Gov website 

How much will I receive? 

The amount of mortgage interest support you will receive will depend on your mortgage amount and interest rate.

However it is important to note that this has a cap of £200,000 and a 2.65% interest rate. 

We can take a look at this example below which demonstrates the breakdown of a typical mortgage payment for a £200,000 mortgage with a 2.65% interest rate:

Here we can take a look at an example situation where the mortgage is £100,000 but the interest rate is 4%:

As you can see in this example you would be required to pay £68 of the interest part of the mortgage payment that wouldn’t be covered by the Mortgage Interest Support loan. 

This is because the SMI loan only covers up to 2.65% of the interest. 

This will vary depending on your personal circumstances and mortgage.  

Check how much of your monthly mortgage payment is capital repayment vs. interest payment and your interest rate to get a better idea of how much support you will receive. 

And keep in mind it’s only applicable to £200,000 of your mortgage. So if you’ve borrowed £300,000, you’ll still need to pay 100% of the interest on £100,000 of it. 

Also, some benefits will see this loan as an increase in income and as a result, other benefits you receive may be reduced and your overall income would not increase.  

If you’re unsure, it is important to discuss this with a benefits advisor or a service like the Citizens Advice Bureau.  

How long does it take to get support for mortgage interest? 

It’s important to bear in mind it can take up to 6 weeks to process an application before the funds are then paid directly to your lender.  

So you should apply as soon as possible to avoid any financial difficulties or falling into mortgage arrears.  

How Long Is Support for Mortgage Interest Paid for? 

Mortgage interest support is paid for as long as you’re eligible to receive it.  

However, the benefit is not paid indefinitely.  

If your circumstances change, you may no longer be eligible for the benefit. 

For example, if you start working and your income increases, you may no longer be eligible for Universal Credit or Pension Credit, which means you may no longer be eligible for mortgage interest support.  

Similarly, if you pay off your mortgage or sell your property, you won’t be eligible for the benefit anymore. 

How can I claim Mortgage Interest Support? 

To claim the benefit, you’ll need to contact the UK Government department which is responsible for your benefits.  

This would be the Job Centre Plus for income support and income-based ESA applicants, the Pension Service if you’re receiving pension credit, and the Universal Credit helpline for Universal Credit applicants.   

You will need to provide them with details of your mortgage, so have this ready when you make your application.  

You’ll also need to provide evidence of the benefits you’re receiving and any other income you have.  

You should do this as soon as possible, as it can take up to six weeks for the benefit to be processed. 

Pros and Cons of Mortgage Interest Support 

Before making a decision on mortgage interest support consider the pros and cons, and if possible seek financial advice to help guide you through the process. 

Mortgage Interest Support Pros: 

• Can offer vital assistance in meeting mortgage interest payments, avoiding arrears 

• The interest rate charged on the borrowing is lower than most options from banks 

• The loan isn’t paid back until the property is sold, therefore will not affect future monthly outgoings 

Mortgage Interest Support Cons: 

• The loan is paid back when the property is sold, although this is considered a pro this could be an issue if you have low equity in the house 

• Receiving the loan may affect other income-based benefits 

• When interest rates are high the government cap means that not all of the interest repayment will be covered 

Alternatives to Mortgage Interest Support 

If you're not eligible or not sure whether Support for Mortgage Interest (SMI) is right for you, there are some alternatives. You could: 

• Take a short payment holiday or deferral to help with temporary financial difficulties 

• Switch mortgages to get a better interest rate 

• Seek financial help from a professional advisor who can explore your options with you 

The first step is often talking to your lender to find out what support they can offer you.  

If you don’t meet the criteria for Mortgage Interest Support because of employment, you may still have remortgage options open to you to reduce your monthly repayments.  

Mortgage payment holidays can be anywhere from 1 to 12 months depending on your lender and personal circumstances. This can be an option if your reduction in income is just a temporary issue. 

Support for Mortgage Interest Loan Key Takeaways 

• The UK government offers Support for Mortgage Interest (SMI) loans as a helping hand to individuals facing difficulty in paying their mortgage interest due to unexpected life events like unemployment or illness. 

• To qualify for SMI, various factors are taken into account, such as the type of benefits you receive, the size of your mortgage, and the interest rate you're charged. 

• The government calculates the SMI loan amount based on the interest rate they set for the first £200,000 of your mortgage. This amount is then directly paid to your lender. 

• Keep in mind that while you don't have to repay the SMI loan until you sell your home, it's still a loan that will accumulate interest over time. 

• If you're eligible for SMI, it's wise to apply as soon as possible since there might be a waiting period before you start receiving payments. Also, remember to stay in touch with both your lender and the benefits office to make sure everything runs smoothly.