The SMI scheme - or the Support for Mortgage Interest scheme - is a UK government loan available to people who are struggling with mortgage payments in certain qualifying circumstances. We look at what it is, how it works and whether an SMI loan is worth it.
What is a Support for Mortgage Interest Loan?
The Support for Mortgage Interest (SMI) loan is provided by the UK government to support homeowners who are struggling to pay the interest on their mortgage or home improvement loan. It's intended to take the pressure off you when you’re experiencing financial hardship.
Usually, if eligible, you apply to the government and they pay the interest equivalent to 3.66% on a maximum loan size of £200,000 (£100,000 if you get pension credit). This means that it may not always cover all of the interest on your mortgage, especially if you owe more than £200,000 or your interest rate is higher than 3.66%. At the current interest rate and maximum loan amount, the maximum SMI loan available is £7,320 a year or £610 a month.
If other adults, such as adult children, live at the premises but don’t pay rent, this can impact the maximum loan available to you.
Although it’s called the ‘support for mortgage interest’ loan, an SMI loan can also be used to pay for interest on home improvements loans, so long as the money was used for:
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Essential repairs or home improvements (insulation, rewiring etc)
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Changes to accommodate ill or disabled residents
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To pay legal fees or stamp duty
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Buying your ex-partner’s share of your home after divorce or separation
It's important to note that SMI loans only cover the interest on mortgage or loan payments, not the actual borrowing.
Will you pay interest on the loan?
Yes, interest is charged over the full duration of your loan term and can be raised a maximum of twice per year. This is currently charged at 4.5%, but is subject to change, so always check the SMI scheme page on GOV.UK for updates.
How does it work?
Once you’ve qualified for an SMI loan, it can take a while to receive it, although payments can be backdated to the claim date. When you receive payment depends on the type of benefit you claim, and how long you’ve been in receipt of it:
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Pension Credit - Immediate payment
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Universal Credit - once you’ve had 3 month of payments in a row
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Income-related Employment and Support Allowance - once you’ve had 3 month of payments in a row
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Job Seeker’s Allowance - once you’ve had 3 month of payments in a row
There is no time limit to repay the loan and you are not required to make repayments, but you can voluntarily make payments to reduce the interest if you wish. Usually you’ll only need to repay the loan when you sell or transfer ownership of your home.
When you sell, once you’ve repaid your mortgage and loans secured on your home in full, if there is not enough money left to cover the SMI, the remaining SMI loan will be written off unless you sold or gave away your home for less than it’s worth on purpose. If you die, The Department for Work and Pensions (DWP) will claim back the amount you owe from the sale of your home, unless it’s left to your partner.
What are the eligibility requirements?
To be eligible for a government SMI loan you won’t need to undergo a credit check or financial assessment. But you’ll need to already claim, or to begin claiming one of the following benefits:
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Universal Credit
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Pension Credit
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Employment and Support Allowance (income-related)
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Jobseeker's Allowance (JSA)
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Income Support
You won’t currently qualify if you receive statutory sick pay, statutory, parental or adoption pay, or income from employment or self-employment. You also won’t usually qualify for an SMI loan to help pay the interest on a new loan or mortgage or any increases to an existing loan or mortgage, unless it has specifically been taken for the purpose of:
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Moving out of rented accommodation
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Making adaptations to better suit the needs of a disabled person
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To give children separate bedrooms (at least one boy and one girl aged 10 to 20)
How to get an SMI loan
If you qualify based on the above criteria, follow these 5 steps to apply for a support for mortgage interest loan:
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Apply for an application through the relevant provider that provides your benefits - This can sometimes be done through your account portal, or at your local Jobcentre plus office, or by phone or email
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Complete the SMI application form you receive with detailed information about your mortgage, home and financial circumstances. You’ll also need to provide supporting documents, such as bank and loan statements, loan agreements and sometimes proof of benefits
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Await your decision from the DWP, who will decide the amount you’ll receive, the interest rate, and how the loan will be paid. This is typically directly to your lender, not to your bank account
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Sign and return the SMI loan agreement and be sure to read the terms and conditions carefully. Most importantly, you must understand that the loan is secured against your property and must be repaid under certain circumstances
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The scheme begins paying your lender directly, which means that you will no longer need to pay the relevant portion of interest to your mortgage or loan provider from that point forwards
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What if you move house?
If you sell or transfer ownership of your home, you must either:
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Ask to transfer the loan to your new home if you buy another property
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Repay the loan and interest as a lump sum from money left after sale (after fully repaying your mortgage and/or any secured loans)
If you finish paying your mortgage but keep your original home, you will not need to repay your SMI loan.
Is an SMI Loan worth it?
Whether or not an SMI is worthwhile for you will depend on your immediate circumstances and long term goals. While it can certainly give you wiggle room during times of financial pressure, keep in mind that it’s a loan, not a grant. This means it will accrue interest and you may eventually have to repay more than you borrowed.
However, if you plan to stay in your home until you die, and only plan to leave your home to your partner, it’s unlikely you’ll ever need to repay the loan. The loan only becomes repayable when you sell or transfer ownership of the property, so if you plan to do neither, it could be incredibly helpful.
Whatever your circumstances, it’s always worth seeking out expert financial advice before you apply.
What alternatives are there to SMI?
If you’re not sure whether the SMI scheme is right for you, but are struggling with interest payments on your mortgage, there may be another solution. Here are just some of the possible alternatives:
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Mortgage payment holiday - not all mortgage products have this facility, but it’s worth speaking to your lender about the potential
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Remortgage to borrow more to consolidate debts, extend the length of your mortgage term or simply get a better deal
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Consider downsizing to a lower cost home, this may allow you to repay the outstanding mortgage with what you make from the sale of your current home
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Switch to an interest-only mortgage deal, although keep in mind that you may not be approved for this if your financial circumstances are strained. You’ll also need a reliable repayment strategy for the final lump sum of your mortgage
Speak to our team of experienced brokers if you feel that any of these options may be more suited to your needs, or for further guidance and advice - get started here.