Mortgage interest payments

Support for mortgage interest payments


If you claim certain benefits, you can apply for a loan from the Department for Work and Pensions (DWP) known as support for mortgage interest (SMI) to help with mortgage payments.

SMI can only help you to pay the interest on your mortgage. It generally cannot be used to pay off the amount you borrowed (the capital).



Am I eligible for SMI?


To get SMI, you (or your partner) need to be claiming one of the following benefits:

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

Can I claim help with loans other than my main mortgage?


You may also be able to get payments towards the interest on loans you took out for:

  • essential repairs or improvements to your home (for example for insulation, repairing dangerous faults or adapting your home if someone in your household is ill or disabled), or
  • buying your ex-partner’s share in your home if you have separated.You won’t get help to pay off the loans themselves, just help towards paying the interest.

    Loans for essential repairs or improvements may be covered even if you take them out after you claim a qualifying benefit.


How long do I have to wait before help starts?


You might have to wait for a number of weeks before payments of SMI can start. How long you wait depends on what benefit you are receiving:

  • If you are claiming Pension Credit : payments can start immediately
  • If you are claiming Income Support, income based Jobseeker’s Allowance or income related Employment and Support Allowance : payments normally start 39 weeks after you started claiming
  • If you are on Universal Credit : payments start 9 months after you start claiming.

What percentage rate is used to calculate payments?


The interest rate used to calculate SMI is set at the Bank of England’s average mortgage rate – currently 2.61%. Check Gov.uk for any changes in this rate.

If the interest rate on your mortgage is higher than the SMI interest rate, then the amount you receive will not be enough to cover your mortgage interest payments. You will still have to pay the remaining interest that is due. If you can’t afford to do this, ask your lender if they will just accept the SMI for the time being until you can make up the full amount at a later date.

If the interest rate on your mortgage is lower than the SMI interest rate, you may be able to repay some of the capital you owe.


How much of my mortgage is covered?


You can usually claim help with interest payments on loans up to:

  • £200,000 if you’re of working age
  • £100,000 if you receive pension credit.

If you claimed SMI as part of another benefit in the 12 weeks before you claimed pension credit, you may still be able to claim help on loans up to £200,000.

SMI is not intended to repay the capital you originally borrowed or pay towards any investment linked to your mortgage (such as an endowment policy, pension or ISA).


How do I claim?


You can claim SMI at your local office of Jobcentre Plus or the Pension Service.

If you are applying for Universal Credit, then you can include a claim for SMI as the ‘housing costs’ element of your claim. You will probably have to apply online. For more information click here.

When you apply for Income Support, income-based Jobseeker’s Allowance, Pension Credit or Universal Credit you will need to include information about your mortgage and housing costs in order to be offered the payments. You will have to provide proof of your income, details of your financial situation and any related paperwork. Your lender will have to complete some of the forms confirming the details of your loan.

If you are already receiving these benefits but are not getting any extra payments towards your housing costs, contact your local Jobcentre, the Pension Service or the Universal Credit helpline on 0800 328 5644 (Welsh language : 0800 328 1744) and ask them if you qualify.


How is it paid, and how long for?


Payments of SMI are usually made at the end of every four weeks, and are normally paid direct to your lender. This is the case even if your mortgage payments are due on a monthly basis, so you may appear to be behind with payments.

If you are receiving Jobseeker’s Allowance and you claimed after 5 January 2009, you will only be able to claim help with housing costs for up to two years. There is no time limit if you claimed before that date or are receiving Income Support, Pension Credit or income-related Employment and Support Allowance.

If your benefits are stopping because you are starting full-time work or are earning more money,  your SMI will also stop but you may qualify for Mortgage Interest Run On payments for the next 4 weeks. Click here for more details.

SMI is a loan not a benefit and must be repaid.

Don’t rush in to agreeing to a loan if you are not sure it is right for you. There might be other options to help you pay the interest that you can discuss with your lender.


How much do I have to pay back and when?


SMI is paid as a loan but,  unlike most loans, you don’t make monthly repayments so it shouldn’t affect your day-to-day budgeting.

The loan payments are secured on your home at an interest rate of 1.3%. This rate may change on 1 January and 1 July every year.

You’ll only need to repay the loan and interest when you:

  • sell the property, or
  • transfer ownership of the property to someone else.

If there’s isn’t enough money from the sale of your home to repay the SMI loan in full, the rest of the loan will be written off and you won’t have to repay it.

If you sell your home and buy somewhere new, you can ask for any loan balance to be transferred to your new home.

You can also choose to pay money back at any time. The minimum amount you can pay back is £100. Contact DWP Loan Repayment – 0800 916 0567 if you want to find out more about doing this.

You can ask to stop getting SMI loan payments at any time.


Where can I get more information?


The DWP has produced easy to read Guides and videos explaining SMI and how to apply.

We are sorry that we cannot provide this information in Welsh, however if you would like to speak to an adviser in Welsh please contact 08000 495 495.

Private sale and rent back schemes

Private sale and rent back schemes


Sale and rent back schemes are operated by private, profit making companies.

You sell your home to a private company and rent it back from them.

If you sell and rent back your home, you can lose the security of a permanent home. You also might not get the best price for your property.



How do the schemes work?


Private sale and rent back schemes buy your home and rent the property back to you. This allows you to stay in your current home while making it more affordable.

Some schemes allow you to sell only part of your home, so that the property is owned on a shared ownership basis, while other schemes make it possible for you to buy your home back when your financial situation improves.

You should think carefully before signing up to a sale and rent back scheme. Although some schemes are effective and could help you to keep your home, others may simply increase your debts.

Sale and rent back schemes operated by private, profit-making companies are very different to the Mortgage Rescue Schemes operated by local authorities or housing associations.


Are private sale and rent back schemes regulated?


The Financial Conduct Authority (FCA) regulates the conduct of these schemes. Before entering into any private sale and rent back agreement you should check to see if the private firm is registered with the FCA. You can do this by using the Financial Services Register.

All FCA registered firms must follow certain rules, including:

  • You should be given a 14 day ‘cooling-off period’ to give you time to get advice on the scheme
  • They must check whether the scheme is likely to be affordable and appropriate for you, and must make you aware of the risks involved
  • The tenancy you are offered must have an initial fixed term of at least five years.

There are also rules on what happens if you get into rent arrears after the sale, for example:

  • You should not be charged a monthly arrears charge if you have made an agreement to repay the arrears
  • Eviction should always be the last resort – all other options should be considered first.

If you think a company is not following these rules, you can complain to the FCA.

Find out more about the FCA regulation of sale and rent back schemes here.


What are the risks of a sale and rent back scheme?


Be aware that:

  • Privately run schemes often buy homes well below the market rate, so you could lose as much as 20% of the true value of your home.
  • Many schemes only give assured shorthold tenancy agreements to the former owners. This gives you very little protection from eviction once you have sold your home. You could be evicted after the initial fixed term has ended – or even before that, if you fall behind with your rent payments or break one of the other conditions of the tenancy.
  • The rent you have to pay may end up being as much as your current mortgage payments. Rent increases may be very large. This increases your chances of getting into arrears after the sale.
  • You may not be entitled to housing benefit (see below).
  • If a scheme gets into financial difficulty after it has bought your home, your home could be repossessed by their lender.

Some companies’ advertisements sound too good to be true… and they usually are. Always get advice before entering into a scheme.


Would I be eligible for housing benefit after the sale?


If you do sell your home through a sale and rent back scheme, your entitlement to housing benefit will depend on:

  • whether the council believes that you did everything you possibly could have done to avoid selling your home, and
  • whether you qualify under the income and capital rules.

There is no guarantee that you will get housing benefit. Get independent advice from a Shelter Cymru adviser about this issue before you enter into any sale and rent back agreement.


Before you contact a scheme


Before you contact a private sale and rent back scheme you should:

  • Continue to pay as much as you can, to avoid the build up of further arrears.
  • Get debt advice from a not-for-profit agency such as National Debtline or speak to one of our specialist debt advisers. Specialist debt advisers can make a full financial assessment and help you work out a plan for clearing your debts, and covering your living expenses.
  • Consider negotiating with your lender first – most lenders consider repossession to be a last resort and are willing to discuss other ways to make your mortgage more affordable.
  • Have a look at The Money Advice Service website, which has lots of advice and information on sale and rent back schemes.

If, after getting advice, you do decide to join a scheme, be sure to ask the following:

  • Can you keep ownership of part of the property?
  • What type of tenancy would you have?
  • What protection from eviction would this give you?
  • What would the rent and other payments be?
  • How often will the rent be increased and how will increases be calculated
  • How will they deal with you if you fall into rent arrears? What procedure will they follow?
  • Can you buy back a stake in the property if your financial circumstances change?
  • Will you have to pay for all the legal and financial costs associated with selling your home to the scheme?

We are sorry that we cannot provide this information in Welsh, however if you would like to speak to an adviser in Welsh please contact 08000 495 495.

Mortgage rescue schemes

Mortgage rescue schemes


Some local authorities and housing associations in Wales operate mortgage rescue schemes (MRS) to help homeowners avoid mortgage repossession if it is likely that otherwise the homeowner will be homeless.

These schemes are very different to sale and rent back schemes operated by private, profit making companies.



How do mortgage rescue schemes work?


Schemes are set up to work in two different ways:

  • Some households will get a shared equity loan.
  • Others will be offered help from a ‘mortgage to rent’ scheme, whereby a local housing association buys their property and rents it back to them.

Shared equity loan
To be eligible for a shared equity loan, you will need to have some equity in your property. If you qualify, you will be given an equity loan from a housing association which should enable you to keep up with your mortgage payments. The loan is repayable to the housing association but is interest free.

Mortgage to rent
If you cannot afford to continue owning a share of the property, the housing association may decide to buy the property at close to market value, and rent it back to you.

You would no longer own your own home and in most cases you would be given an assured or an assured shorthold tenancy.


Who is eligible?


Each council or housing association will have it’s own criteria to decide who is eligible for help under their MRS. You will need to contact them directly to see what their criteria are.

Funding for most schemes is limited, so not everyone who applies will accepted. Some of the things they are likely to consider when deciding if you can get help through the MRS are whether:

  • you live in specially adapted housing to meet the disability needs of your household
  • you would be in priority need for re-housing by the council if you become homeless
  • your lender intends to repossess your home
  • you will be homeless if the property is repossessed
  • the property is your only or main residence
  • the property is clear of any legal reasons that would prevent it being sold
  • you are unable to sell the property and buy a cheaper home locally.

Who can help you apply?


Shelter Cymru’s housing advisers can explain the schemes and help you work out if you might be eligible. We also have specialist debt advisers if you need more in depth debt advice.

You can also contact your local council’s Housing Options team, homelessness team or housing strategy officers for advice as to whether there is an MRS in your area which could help you.

We are sorry that we cannot provide this information in Welsh, however if you would like to speak to an adviser in Welsh please contact 08000 495 495.

Selling voluntarily

Selling your home voluntarily


You may decide to sell your home to pay off your mortgage arrears.

You should continue to pay your mortgage (and any arrears, if you can) until the property is sold, and you may need your lender’s agreement if you have negative equity. You will also need to find somewhere else to live and money for the costs involved in buying or renting.



Do I need to keep paying my mortgage?


If you are thinking of selling your home, it is still important to continue to pay as much as you can towards your mortgage. If you don’t pay, your lender may decide to take you to court to evict you. If this happens, you may have to pay expensive legal fees (for yourself and your lender) on top of everything you originally borrowed.

Selling may take a long time, so it may be difficult to keep up your monthly payments until the sale is completed. If you have problems, get advice.


Getting a valuation


To help you decide whether selling is the right option, you need to know how much your home is worth. Many estate agents provide free valuations, which tell you how much your home is likely to sell for. This will help you work out whether selling your home will mean you can pay off your debts.

The difference between what your home is worth and how much you owe on your mortgage is called equity . If your home is worth more than the amount you owe, it may make negotiating with your lender easier. If it is worth less than what you owe, you are in negative equity. This might be the case if:

  • property prices have fallen since you bought your home, or
  • you have large mortgage arrears, which mean that your total debt adds up to more than the current value of your home.

If you have negative equity and you sell your home, you will still have to repay the full amount that is outstanding on your mortgage. Your lender can take legal action against you to get back any unpaid debts, even after the property is sold.


Getting permission to sell


If the money from the sale isn’t likely to pay off your mortgage, you normally need your lender’s permission to sell your home. It may be easier to get this if you can show them plans to convince them you can realistically pay off everything you owe. If you had to take out a mortgage indemnity guarantee when you bought the property, your lender can claim any shortfall from the insurance company, but you will still be responsible for the debt.

If you have used your home as collateral for any other secured loans, you may also need permission from the lender who provided them.

Get advice if you can’t get permission to sell. An adviser may be able to help you negotiate with your lender or other creditors. If you still can’t get permission to sell, it may be possible to get a court order allowing the sale to go ahead.


Stopping repossession


If your lender decides to go ahead with court action and won’t give you permission to sell your home privately, get advice immediately.

You may be able to get an order from the court postponing the eviction to give you time to sell your home. You will have to give the court a reason for stopping the eviction. If you have a buyer, you may be able to argue that your lender is being unreasonable and that you are more likely to be able to clear your debts if you sell your home yourself.


Costs of selling


There are lots of costs involved in selling your home (and in buying somewhere else if you decide to do so). You will have to pay some of the costs involved before the sale is final.

If you are on income support (IS) or income based jobseekers allowance (JSA), any money you get from the sale after your mortgage has been paid off may be counted as capital, and your benefits reduced or stopped. It is still important to inform the DWP when you sell your home. If you don’t, you will probably have to pay back any benefits that you weren’t entitled to.

If the value of the property has increased since you bought it and it is not your main home (for example if it has been rented to tenants), you may have to pay capital gains tax when the sale is completed. This can be expensive.


Finding somewhere else to live


If you decide to sell your home, you need to find alternative accommodation that you can afford. This could be through:

  • staying with family or friends
  • buying a cheaper property
  • renting from a private landlord
  • asking the local council for help because you are homeless.

The council have legal duties to help people who are homeless or threatened with homelessness within 56 days.  If you’re struggling to pay your mortgage, you should contact the council to see if they can help prevent you from losing your home.

If it’s not possible to keep your home, the council will have a duty to help you to find somewhere else to live.  The council will only have to provide you with accommodation while they help you find somewhere else if you are in priority need, eg if you have dependent children, you/your partner is pregnant, or if you have a disability or are vulnerable in some way.

The council’s duties to help you are likely to be for a limited time if they decide that you are intentionally homeless if you lost your home because you didn’t pay your mortgage.  The decision will depend on your particular circumstances, not just the fact that you couldn’t pay your mortgage. For example, if your problems were caused because you lost your job, split up with your partner or became ill.

If you think you will need to apply to the council for help, get advice before the sale is final. An adviser may be able to help you convince the council that you did everything you could to keep your home.

See the section on homelessness for more information on when a local council must help you.

We are sorry that we cannot provide this information in Welsh, however if you would like to speak to an adviser in Welsh please contact 08000 495 495.

Increasing income

Increasing your income


If you’re struggling to pay your mortgage, it might be possible for you to increase your income to make your mortgage payments more affordable.

Perhaps you could rent out a room in your home, or even rent out your whole home? Read below about some important things to think about if you want to consider those options.

You can also take a look at our booklet ‘How to cope with mortgage arrears‘ for more ideas.



Renting out a room


Do I need permission from my lender?
Most mortgage agreements allow you to rent out a room in your home, but you usually need to get permission from your lender. Check your mortgage agreement to see what it says. If it says you need permission, it’s important to get this before anyone moves in. If you don’t, you could be breaking your agreement and your lender may be able to take you to court.

If your lender refuses to give permission, get advice.

Will it affect my benefits?
Your benefits will probably reduce if you rent out a room. It might still be worth it, however, as you may end up with more income than you would get on benefits alone. It is important to inform the DWP as soon as you start receiving rent. If you don’t, you may have to pay back any benefits that you weren’t entitled to.

If you are receiving a means-tested benefit like income support (IS), job seekers’ allowance (JSA), or income-related employment support allowance (ESA) the first £20 each week that you receive in rent will not be counted as income. If you also provide some meals to your lodger, only half of what they pay you each week over £20 will be counted as income.

As an example, if you charged your lodger £60 per week for a room and some meals, the first £20 would not be counted as income. Half of the amount you charge above £20 will be counted as income which in this case would be £20. So, all in all, £20 of the £60 per week you are charging your lodger for renting the room would be counted as income when the amount of benefit you are entitled to is being calculated. If you weren’t providing any meals then £40 per week of the £60 the lodger pays would be treated as income.

What if I am on Universal Credit?
If you are receiving Universal Credit, the rent that you get from your lodger is not counted at all as income. You will still need to tell your work coach that you have taken in a lodger.

Council tax
You will be responsible for the council tax. If you were previously living alone and were eligible for the 25% single person’s discount you will no longer be entitled to that once you have a lodger. You may however be eligible for other help paying your council tax – click here for more information.

Will I have to pay tax?
Under the Rent A Room scheme you don’t have to pay any income tax on the rent you receive if:

  • you live in the same property,
  • the room you rent out is furnished, and
  • the rent you receive is not more £7,500 a year.

If you get more than this amount in rent, you can either pay income tax on the amount over the £7,500, or pay tax on all the rent and claim tax back on any expenses involved (such as buying furniture or providing services).

What are my responsibilities as a landlord?
If you rent out a room in your home, you will be responsible for:

Will it affect my contents insurance?
Renting out a room in your home may also affect your contents insurance. Many insurers will increase your premiums, but you should still inform them if you want to be sure that your belongings are protected from theft or damage. If you don’t, your insurance may not be valid.


Renting out your home


You could consider moving elsewhere, and renting your home to tenants. The rent you receive could help to pay your mortgage. This is normally only a good option if it will mean you can afford to pay your mortgage and also pay the rent somewhere else.

You will need to:

  • get permission from your lender
  • work out how it will affect your tax and benefits
  • understand the responsibilities you will have as a landlord.

Video courtesy of Money Advice Service

Do I need permission from my lender?
Most mortgage agreements do not allow you to rent out your home without your lender’s permission. Check your mortgage agreement to see what it says.

If it says you need permission, it’s important to get this before anyone moves in. If you don’t, you could be breaking your agreement and your lender may be able to take you to court. Many lenders refuse to give permission if you have mortgage arrears. Some lenders charge a higher rate of interest if you rent out your home, so your monthly payments could increase. Get advice if you have problems negotiating with your lender.

Will my buildings insurance be affected?
Renting out your home may also affect your buildings insurance. Some insurers will put up your premiums, but you should still inform them if you want to be sure that your home is protected. If you don’t, your insurance may not be valid.

Will I have to pay tax?
You normally have to pay income tax on the rent your tenants pay. If you later decide to sell your home (without moving back in first) you may also have to pay capital gains tax. This will only be the case if the value of your home has increased since you bought it.

How will it affect my benefits?
If you are on means tested benefits such as income support (IS) or income based job seeker’s allowance (JSA), they will probably be reduced if you rent out your home. If you have a lot of equity in your home, they may be stopped altogether. This is because the rent you receive will be counted as income, and the value of your home (minus your outstanding mortgage and any debts you have) will be counted as capital. However, if you live in an area where rents are high and are able to move to a cheaper area or a smaller property, renting out your home may give you more income than you would get on benefits.

Although your benefits may be reduced, it is important to inform the DWP as soon as you start receiving rent. If you don’t, you will probably have to pay back any benefits that you weren’t entitled to.

What responsibilities will I have?
If you rent out your home, you will have certain responsibilities as a landlord, such as:

  • repairs and maintenance
  • getting a valid gas safety certificate each year
  • agreeing the rent and any other conditions
  • registering with Rent Smart Wales and, if you are managing the property yourself,  obtaining a licence.  (If you decide to use an agent to manage the property for you, the agent will need to have a licence)
  • if you receive a deposit from you tenant you must put it in an approved government scheme within a strict time limit. See our pages on Tenancy Deposits for more information.

The rights your tenant has will depend on the type of agreement you agree.  In most cases s/he will be an assured shorthold tenant. If you want her/him to leave, you usually have to give two months’ notice. If they don’t leave after the end of the notice period, you would have to get a court order before they can be evicted.


Where can I get help and advice?


Working out your options can be complicated. A specialist adviser may be able to help you to look at all the possible solutions and put together a realistic and affordable proposal for keeping up with your ongoing mortgage payments and paying off any arrears you have.

Contact one of our specialist debt advisers or find your nearest Shelter Cymru advice surgery.

We are sorry that we cannot provide this information in Welsh, however if you would like to speak to an adviser in Welsh please contact 08000 495 495.

Arrears on a repayment mortgage

Arrears on a repayment mortgage


If you have arrears on a repayment mortgage, read the options below to stop your arrears from rising and to avoid any action being taken against you.

Take a look at our booklet ‘How to cope with mortgage arrears‘ for more ideas.

CORONAVIRUS UPDATE

If your income is affected by coronavirus and you are worried about paying your mortgage, speak to your lender as soon as possible.

During the pandemic mortgage lenders were offering payment holidays, but the deadline for applying for a holiday has now passed.

If you are finding it difficult to pay your mortgage, even if you have had a payment holiday, your mortgage lender should offer you support. It’s important to discuss the support you need with your lender as soon as possible.

If you cancel your mortgage payment direct debit without telling your mortgage lender, then it will be classed as a missed payment and you could risk having your home repossessed.

When you speak with your lender, give them as much information as possible about your circumstances, so that they can offer you the appropriate support. The support could include:

  • Making a part payment for a short time
  • Extending the length of your mortgage
  • Changing the type of mortgage you have.

Click here to find out what support your lender is giving.

Check if you have insurance that will cover your mortgage payments instead. For example, mortgage payment protection insurance or through your bank account.


Reducing capital repayments


If your difficulties are short-term, your lender may agree to allow you to pay only the interest on your mortgage for a few months. This option is most useful when your mortgage is close to being paid off and your monthly payments are mainly made up of capital. You will have to catch up on the unpaid capital later, so you need a realistic plan for future payments.

Some lenders will refuse to allow you to pay interest only if your mortgage is already in arrears. If this happens, get advice. An adviser may be able to help you negotiate with your lender to reduce (rather than stop) your capital repayments to make them more affordable.

You may also be able to persuade your lender to accept reduced interest payments as well as stopping your capital repayments for a limited period. They will normally only do this if:

  • you are trying to sell your home, or
  • your problems are short term and you’ll be able to meet the full repayments soon.

Extending the mortgage term


You might be able to negotiate with your lender to extend the number of years left on your mortgage (the ‘term’). This will give you a longer period of time to pay back your loan, so your monthly payments will be smaller. The likelihood of your lender agreeing to do this usually depends on:

  • how large your arrears are
  • your age and expected retirement date
  • whether you have a permanent job
  • how much longer your current mortgage has to run (many lenders will not extend a mortgage beyond 25-30 years).

If you decide on this option, you can ask your lender to reduce your mortgage term again when your financial situation improves or interest rates fall.


Adding the arrears to your mortgage


It may be possible to add any arrears you have to the rest of your mortgage (‘capitalise the arrears’). It will mean that you can pay off any payments you have missed over the rest of the mortgage term. You will probably have to make higher monthly payments, unless you are also able to extend the term of your mortgage (see above).

You can normally only add your arrears to the rest of your mortgage when your financial situation improves. Most lenders will usually expect you to meet your regular mortgage repayments for at least six months before they will agree to it.


Breathing space scheme


If you are struggling to pay your mortgage and are in arrears you may eligible for the Breathing Space scheme. This gives you time to get some specialist debt advice without the pressure of formal action being taken against you.

To find out more about the scheme and how to apply, click here.


Getting help and advice


Negotiating with your lender can be complicated.

Contact Shelter Cymru for further advice and help.

Alternatively there are lots of other organisations who might be able to help, such as Citizens Advice or the Money Advice Service. Many have specialist advisers who can help you work out your options and/or negotiate with your lender.