Support Mortgage Interest - waiting time cut

The Government's move to cut the waiting time for Support Mortgage Interest from 39 weeks to 13 weeks and increase the capital limit to £200,000 came into effect on the 5^th January 2009.

Last month the Government confirmed those people in the system who have served 13 weeks or more of their waiting period by that date will be entitled to SMI immediately. Those who have served a period of less than 13 weeks by that date will become entitled to SMI at the point at which they will have served a full 13 weeks.

The move was widely welcomed by consumer associations but the benefits will not be available to everybody, depending upon personal circumstances.

There is a risk that a Homeowner will look at these benefits and assume that they do not need private insurance to protect themselves from Accident, sickness or redundancy.

So is it still worthwhile insuring privately against loss of earnings?

One prime consideration should be that there is no certainty that state benefits will be available in the future at the point where they are needed. In addition, payments under SMI are not received for the first 13 weeks and then are only related to the mortgage interest itself. Any household has additional costs that it must cover to avoid building up debts.

Most people will also be aware that applying for state benefits can be complicated and there are some conditions associated with the payments of SMI that may reduce the benefit received, not least of which any savings that the borrower may hold separately. Private cover avoids much of the stress associated with this process.

The original government press release can be viewed regarding the extension of SMI and further general information with regard to claiming benefits can be found by visiting the DWP website or from the charity Shelter.

The Homeowners Mortgage Support Scheme

In conjunction with the new increased Support for Mortgage Interest benefit arrangement, the government also announced the Homeowners Mortgage Support Scheme. This was designed to provide greater assurance to homeowners that they will be able to remain in their homes if they suffer a temporary fall in income.

The scheme would allow a lender to reduce a qualifying borrower's mortgage repayments on the basis that these would be rolled up, to be repaid at a later date. The liability for this rolled up interest will be indemnified by the government and ultimately the taxpayer.

The scheme would cover mortgages of up to £400,000 where the claimant is:

• not receiving benefit under SMI
• has less than £16,000 in savings
• is able to make some monthly payments on an ongoing basis
• has had eligibility determined by advice from a party other than their lender
• has already been in arrears for a number of months

The scheme would initially be available for a period of up to 2 years and the lender guarantee provided by the government expires as soon as the customer is able to resume normal payments.

The scheme is voluntary but has been adopted by the 8 largest lenders, covering 70% of the mortgage market.

This extension of assistance for homeowners is valuable in that it should reduce repossessions but it is important to remember that the interest is deferred rather than cancelled. The increased debt will therefore take longer to repay. Industry pundits have also speculated that there may actually only be a few thousand borrowers that might actually qualify under this scheme.

So the message is that the state will help where it can but homeowners need to help themselves by arranging good quality cover to protect their mortgage and general household expenses.

These policies are available from lenders but it is also a good idea to approach a mortgage broker that is either 'whole of market' or 'independent' as far as their products are concerned. They should be able to offer a wider choice and perhaps lower premiums.

This article is provided for general information only and is not intended as advice to any individual reader. For financial advice that is related to your own personal circumstances you should consult with a qualified financial adviser.