UK Finance and the Building Societies Association (BSA) want changes to the support-for-mortgage-interest (SMI) scheme in advance of an anticipated rise in unemployment.
This helps property owners in receipt of benefits but, as it stands, they must wait 39 weeks to claim - during which time their financial situation may become so difficult that they are unable to remain in their home.
Furlough cash, alongside other support measures, have protected millions of people from significant financial difficulties during the Covid-19 pandemic.
UK Finance and the BSA now want the Government to:
1) Reduce the wait time for accessing SMI from 39 weeks to 13 weeks, to make sure help is given when people need it most.
2) Allow those on Universal Credit to claim SMI if they are working on reduced hours.
The industry bodies said these changes will have a very limited impact on the Government purse, but a huge impact on household budgets.
Industry views
Paul Broadhead, head of mortgage and housing policy at the BSA, said: "With the end of the furlough scheme only days away, there is a likelihood that unemployment will rise.
"Without urgent modification of the SMI scheme the risk of home repossession could become a reality for many despite the best efforts of lenders.
"Without the reforms, we expect more Government funding will be required for the provision of housing benefits for former homeowners who were unable to get the financial support they needed, when they needed it.
Charles Roe, director of mortgages at UK Finance, added that the current wait time and eligibility criteria for SMI is preventing much-needed help going to struggling homeowners before their mortgage arrears start building up.
Jane Tully is, director of external affairs and partnerships at the Money Advice Trust, the charity which runs National Debtline. She said: "With furlough ending on October 1 and, with many people facing the risk of unemployment and reduced hours, accessing support through Universal Credit and SMI will be crucial."
Research
Research suggests that only 30% of households have enough savings to pay their mortgage for two months, but the wait time for those eligible to claim SMI is currently nine months.
This means homeowners could accumulate more than six months arrears before they receive much-needed support - making it significantly harder to manage and resolve their financial difficulties.
One in 10 property owners said it was difficult to keep up mortgage payments in the last year, with the top reasons including being furloughed or on reduced pay (34%) and working fewer hours (31%).
In 2016, the Government extended the wait time for SMI from 13 weeks to 39 weeks. Then in 2018 a further change to SMI saw it move from a benefit to a loan which needs to be repaid with interest when the home is sold.
