Government should refine existing mortgage safety net and offer time-limited grants to people left vulnerable to repossession through loss of income or employment

New report considers implications of Covid-19 crisis for homeowners and how to strengthen support for the almost 800,000 households that are vulnerable to repossession

The government should refine the existing mortgage safety net and offer time-limited grants to people who are left vulnerable to repossession through loss of income or employment, according to the Social Market Foundation (SMF).

In Safe as houses: strengthening the UK’s mortgage safety net, the SMF explores support for mortgage-holders who experience loss of income or employment, looking at the economic case for support, the UK’s policy history, and the implications of the Covid-19 crisis for home repossessions.

Key points of concern arising from the research include that -

• prior to the Covid pandemic, about 770,000 households were in a financial position that would leave them vulnerable to repossession in the event of a loss of income;
• almost a third (29 per cent) of respondents to a February 2021 survey of 2,000 mortgage-holders commissioned by the SMF reported reduced savings during the pandemic; and
• around 14 per cent of survey respondents said they lacked the savings to cover even one mortgage payment, while three in ten said they could pay their mortgage for no more than two months.

Highlighting that the UK’s government-backed mortgage safety net has been eroded in recent years - particularly by the shift from provision of support for mortgage interest (SMI) as a benefit to a repayable loan, and with SMI only being available to universal credit claimants if they are entirely out of work - the SMF says that this has left a significant number of households potentially vulnerable in the event of an economic downturn.

Having also considered how other countries have implemented alternative support measures for mortgagors at risk of losing their home - including early access to pension wealth (Australia), a government-backed buy and rent back company (Hungary), and direct subsidies for mortgages and to help transitions to alternative tenures (USA) - the SMF draws out four key recommendations for policymakers to help refine the mortgage safety net in the UK -

• improving ‘social’ safety nets by replacing SMI loans with a time-limited grant (as recently proposed by the Centre for Policy Studies) and reducing the current 39 week waiting period for receiving SMI to 13 weeks;
• enhancing ‘private’ safety nets through encouraging wider uptake of mortgage payment protection insurance and allowing individuals to draw on pension wealth in a case of extreme financial distress;
• introducing an enhanced Assisted Voluntary Sale (AVS) process, which could include measures such as removal of early repayment charges to help sell a property before the mortgage term ends and cash payments towards rent or deposit on a new rental property; and
• introducing more flexible tenure options such as freeholds held by a new trust entity - with trustees being the lender and the householder - that, unlike shared ownership, would enable individuals to increase or decrease their ownership stake by incremental amounts rather than large equity shares.

Research Director at the Social Market Foundation Scott Corfe said today -

‘It’s often observed that the pandemic public health restrictions have allowed many people to pocket extra savings. But our analysis shows this isn’t true for everyone and close to 800,000 homeowners could be at risk of losing their home during these turbulent economic times.

With 30 per cent of homeowners seeing a reduction in savings during the pandemic, the government needs to prepare for a possible spike in evictions and repossessions, with many of society’s most vulnerable unable to keep paying their mortgage if they suffer a loss of income or lose their job.

Ministers should urgently consider a time-limited hardship grant for those at risk of repossession as well as long-term reform of the existing Support for Mortgage Interest scheme.’

For more information, see Nearly 800,000 homeowners vulnerable to repossession during the pandemic from smf.co.uk