Support for Mortgage Interest

Support for Mortgage Interest is a state benefit payable to some borrowers who need help with their mortgage repayments. Support for Mortgage Interest should not be confused with Homeowners Mortgage Support, a scheme under which some mortgage companies will agree to reduce the payments on a borrower’s mortgage for up to two years because of a temporary financial difficulty. Presumably because of the similar name, these two schemes often seem to be confused.

Eligibility for Support for Mortgage Interest

To be eligible for Support for Mortgage Interest a borrower must already be in receipt of one of the following state benefits:

• Income Support – which can be claimed by some people on low incomes with savings of less than £16,000;
• Job Seekers’ Allowance – for people actively seeking work;
• Employment and Support Allowance – for people who are unable to work because they are sick or disabled;
• Pension Credit – benefits which effectively top up the applicant’s pension.

Applying for Support for Mortgage Interest

In January 2009 new temporary rules were introduced which reduced the period between making a claim for Mortgage for Support Interest and those payments starting. Previously, most applicants had to wait 39 weeks before payments commenced. This resulted in many homeowners accruing substantial arrears before any help with their mortgage instalments became available. Under the new rules applicants usually only have to wait 13 weeks after making the claim before the payments will start. Once payments start they may include a back payment to cover the period between when the claim was made and when payment began.

Applications should be made to JobCentre Plus or, for those on Pension Credit, to The Pension Service. Borrowers who started claiming Job Seeker’s Allowance from January 2009 onwards will only be able to claim Support for Mortgage Interest for up to 2 years. If a couple is living together and are both named on the mortgage, they will only be entitled to Support for Mortgage Interest if they are both individually entitled to one of the other qualifying benefits.

Different rules may apply to borrowers:

• Who are on pension credit. For example there is no waiting period between claiming and payments starting.
• With a loan taken out before 2nd October 1995.
• Who are vulnerable – such as a single parent.

How Does Support for Mortgage Interest Work?

Support for Mortgage Interest – as its name suggests – is a benefit which works by contributing to the interest part of a mortgage repayment. It will not help with any part of the capital due. However, there is a limit on the amount that can be claimed. Until the new temporary rules were introduced in January 2009, Support for Mortgage Interest only contributed towards the interest on the first £100,000 of a mortgage. Under the temporary rules borrowers may be entitled to help with the interest on up to £200,000 of the mortgage.

Homeowners on Pension Credit may still only be entitled to help with the interest on £100,000 of the loan. However, help may be available on up to £200,000 for applicants who claim Pension Credit within 12 weeks of ending a claim for Income Support, Job Seeker’s Allowance or Employment and Support Allowance.

Payments are generally made directly to the lender and may be made on a four weekly basis rather than per calendar month. No additional payment will be made in respect of any arrears that may have built up. However, a standard interest rate is applied to all claims for Support for Mortgage Interest. This is currently higher than the interest rate on many mortgages. Therefore, it is possible that the amount of Support for Mortgage Interest received could exceed the interest part of the mortgage instalment.

Changes Ahead for Support for Mortgage Interest

The January 2009 changes to the Support for Mortgage Interest benefits system were only intended to be temporary and were subject to being reviewed in June 2010. In the emergency budget unveiled by the UK’s coalition government on 22nd June 2010 it was announced payments of Support for Mortgage Interest will now be calculated according to the Bank of England’s monthly average mortgage interest rate.

Interest rates in the UK have been at historically low levels and in many cases claimants of this benefit will have been receiving more than they actually pay in interest. Until interest rates go back up, the government’s announcement is likely to mean that the Support for Mortgage Interest payments will go down for some claimants. The change in the rate used to calculate Support for Mortgage Interest is due to come into effect from October 2010. It is possible that other changes to the Support for Mortgage Interest benefit will be announced in the near future.