Reform of support for mortgage interest loan scheme should include abolition of waiting period and an initial three-month grant, says Centre for Policy Studies

New report from centre-right thinktank says that more generous scheme would not only protect low-income homeowners impacted by the COVID-19 crisis, but would also be highly cost-effective

The Centre for Policy Studies CPS thinktank has recommended reform of the support for mortgage interest (SMI) loan scheme, including the abolition of waiting periods and for support over the initial three months to be paid as a grant.

In a new report, From SMI to Mortgage Support: How to help struggling homeowners through the pandemic, supported by the Joseph Rowntree Foundation, the CPS - that describes itself as 'a leading centre-right think tank' - argues that there is a short-term need to improve the SMI scheme to support homeowners through the coronavirus crisis, as happened in the wake of the financial crisis when the grant-based scheme was reformed to reduce the waiting period from nine months to 13 weeks, and the loan cap increased from £100,000 to £200,000

Stressing that any changes should not involve the government subsidising the retention of assets that claimants can no longer afford, or help homeowners to build up capital where renters cannot, the CPS says that its reforms whould help low-income homeowners cope with both personal and economic shocks so that they can remain in their homes, while also saving costs for the government compared to the position were households forced to move to the rented sector and rely on housing benefits (the CPS estimates that its reformed SMI system would cost the government ten times less per household compared to housing benefit).

As a result, among its key recommendations for change, the CPS says the government should -

• abolish the nine-month waiting period for SMI so that it is available from day one;
• pay the first three months of SMI as a grant, not a loan, and charge no interest on the next nine months of any claim;
• introduce flexibility to allow people to claim SMI while moving into work, in order to remove the current cliff edge created by the loss of SMI where any amount of earnings are received, and make it far more responsive to changes in people’s circumstance;
• provide for a two-year time limit on claiming SMI for non-disabled working-age claimants.

Welcoming the report, Policy and Partnerships Manager at the Joseph Rowntree Foundation Darren Baxter said -

‘Even before coronavirus hit, a third of homeowners were living in poverty. And as the economic fallout from the pandemic grows, that number is likely to rise. With the deadline for applying for a mortgage holiday rapidly approaching, now is the time for government to take swift action.

Reforming the Support for Mortgage Interest scheme is a targeted and cost-effective way of preventing struggling homeowners from being pulled further into poverty. This crisis has shone a spotlight on just how important a safe, secure and stable home is. The government’s focus must be on ensuring people can stay in their homes, whether they be homeowners or renters.’

For more information see From SMI to Mortgage Support from the Centre for Policy Studies website.