From 6 April 2018, Support for Mortgage Interest (SMI), a scheme available to help those who need financial support to meet their mortgage payments, was replaced with a new repayable loan scheme.

This change in government policy has crept up on homeowners and the insurance industry alike.

The SMI scheme enables qualifying homeowners on low incomes to receive help towards the interest payments on their mortgage, or on any loans they’ve taken out for repairs and improvements made to their home.

Previously, SMI was paid to eligible homeowners as a benefit, but as of 6 April this changed to a government loan secured against their property, that must be paid back with interest.

The new scheme could mean that those already unable to pay off their mortgage could end up in even more debt, adding the government to their list of creditors.

Some critics are referring to the new scheme as a “second mortgage”, alluding to the fact that many financially vulnerable homeowners will effectively be asked to take out a loan to pay off a loan.

Furthermore, the new scheme could mean that those already unable to pay off their mortgage could end up in even more debt, adding the government to their list of creditors.

Rising living costs mean it is already often a struggle to make ends meet or to save for a rainy day. Moreover, there is a widespread expectation that the government and employers are able to provide some degree of financial safety net for those in need.

Though there are still many valuable financial lifelines in place, they should not be relied upon as the only support. For example, there is no guarantee that an applicant would receive SMI for a mortgage or loan they take out.

The introduction of the new scheme serves as an important reminder to us all of the potential risks which can occur were we to lose our income. One such risk and a major reason for calling upon SMI is loss of income as a result of longer term sickness or injury.

In the event that a homeowner suffers ill health and is unable to work, being able to claim on an income protection insurance policy means financial support to pay and service their mortgage as well as meeting other living costs.

Having this protection in place not only mitigates the need for government support and an additional loan, it can also bring peace of mind. Income protection can cover the whole of a homeowner’s mortgage payment, unlike the new government loan scheme which covers interest only and is repayable.

The recent changes to the SMI scheme means now is an opportune time to undertake a review of your own cover to ensure you are adequately protected should you suffer ill health and be unable to work in the future.

Julian Kaye Dip PFS

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