An influential think tank has called for more help for homeowners to stop a ‘cliff edge’ once the mortgage holiday scheme ends.
Millions of households opted to put their monthly mortgage payments on hold as the coronavirus crisis unfolded, but many are now worried about what will happen to their finances once the scheme ends next month.
A report from the Centre for Policy Studies warns that many will risk losing their homes once the scheme winds up and furlough comes to an end – particularly if they find they no longer have a job.
While housing benefits are available to renters, owner occupiers can only claim for a loan from the government to help them cover their mortgage interest.
This scheme, called the Support for Mortgage Interest scheme, also known as SMI, needs urgent reform if struggling families are to avoid a cliff-edge, the report argues.
Customers yet to apply for a mortgage payment holiday have until 31 October to do so
SMI is a benefit paid to those struggling to pay their mortgage, introduced in the nineties following the recession triggered by Britain’s exit from the European Exchange Rate Mechanism.
At the time interest rates were sky high, while house prices plunged and repossessions went up.
SMI has been scaled back gradually over the past 25 years and in April last year the government scrapped it, replacing it with a loan that beneficiaries would have to repay when their home was sold.
But the system needs to be quickly overhauled to protect families when mortgage holidays end, the Centre for Policy Studies suggests.
There is currently a nine-month waiting period for SMI, which the think tank says should now be abolished.
It also recommends that the first three months of the benefit should be paid as a grant, not a loan, and that lenders should make people who are at risk of losing their homes aware of this scheme automatically.
It also suggested that SMI should be time-limited for claimants who are able to work and are not receiving a disability-related benefit.
This, it claims, would make sure that people do not remain in homes they cannot afford in the long term.
Is there a mortgage crisis brewing?
Initial industry data suggests that 70 per cent of homeowners who took a mortgage holiday have resumed making full payments. That leaves up to 600,000 who have not.
While the government negotiated that this wouldn’t leave a black mark on credit reports, it cannot stop lenders from requesting bank statements when a new loan application is made.
Lenders have already been turning away borrowers who took a mortgage holiday.
And the number of available mortgages has dropped dramatically since lockdown, limiting the choice for those those with little equity in their home.
Centre for Policy Studies’s James Heywood said: ‘The scheme is going to be vital for ensuring people losing their jobs do not also lose their homes before they manage to get back to work.
‘The Government needs to act now to make the necessary changes so people can move straight onto SMI when their mortgage holiday runs out or when they become unemployed.
‘If they don’t, not only will people be forced out of home ownership into the rented sector, it will also cost the state more to support them through housing benefit.’
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