Amid the current mortgage chaos of lenders pulling deals and raising rates, more people may find it a struggle to keep up with their mortgage payments in the months ahead and may wonder what help is available, particularly if they lose their job.
Homeowners who struggle with their mortgage payments due to losing their job may have to build up significant arrears before they get government help due to a change in the system of benefits geared towards them, according to a former pensions minister.
Steve Webb said the number of people receiving government help with their mortgage costs has dropped since a reform to the system in 2018.
From April 2018, a system of benefits for mortgaged homeowners who lost their job was replaced with a system of repayable loans, secured against the claimant’s property.
Webb highlighted figures for May 2022, suggesting around 12,845 loans were in payment, compared with around 90,000 receiving help through the benefit system in March 2018, just before the new regime was introduced, and around 200,000 being helped a decade ago.
With mortgage rates on the rise, alongside other household bills, and many mortgage products having recently vanished from the market, more homeowners may find it a struggle to keep up with their mortgage payments in the coming months.
We look at what help is available now.
Mortgage help from the government if you lose your job: how it works
Under the current system, called Support for Mortgage Interest, people with a mortgage can claim for help with interest costs if they are on a qualifying benefit, such as Universal Credit, pension credit or employment and support allowance.
Webb said the limitations on the scheme mean that people can build up significant arrears over the first nine months that they are out of work, before help starts.
Once help starts, the Department for Work and Pensions (DWP) will only contribute to the interest on the first £200,000 of the outstanding mortgage, or £100,000 in the case of new claims for those over pension age, he added.
The DWP will pay interest on the assumption of a standard interest rate applied to all claimants, rather than the actual interest rate being paid.
Support for mortgage interest is set at a level equal to the Bank of England’s published monthly average mortgage interest rate and subsequent changes to the standard interest rate only occur when the Bank of England average mortgage rate differs by 0.5 percentage points or more from the standard rate.
But it means those with a relatively large outstanding mortgage, such as first-time buyers, and those paying above-average mortgage rates, could find that the eventual help they get is not enough to cover their ongoing mortgage costs, Webb warned.
“If a homeowner loses their job, the welfare safety net has largely been dismantled in recent years. In most cases no mortgage help is available for nine months, during which time large arrears could build up,” he said.
“And even when help does start it may fall short of actual interest payments and has to be repaid with interest when the property is sold.
“Many working homebuyers may be completely unaware of the lack of support they will get from the state if they lose their job and may need to think hard now about how they would sustain their mortgage – and keep their home – if they were to lose their job.
“One thing is clear – they cannot depend on the government to support them.”
Where to get help if you’re struggling with mortgage payments
If you’re having difficulty meeting your mortgage commitments, it is important you speak to your lender as they will have set processes in place to assist.
Under FCA (Financial Conduct Authority) guidance, the lending industry must consider a range of support options, including:
- part-payment plans
- mortgage term extensions
- temporarily transferring to an interest-only mortgage
- deferring interest due
A spokesperson for trade association UK Finance said: “Lenders stand ready to help customers who might be struggling with their mortgage payments.
“There is a range of tailored support available, anyone who is concerned about their finances should contact their lender as soon as possible to discuss the options available to help.”
Additional information from PA
-
Octopus Energy relaunches energy tracker deal – we explain what you need to know and if it could save you moneyIf you’re an Octopus Energy customer, you may be able to save on your energy bills with the relaunch of its tracker deal. We look at how it works
-
Three energy firms pay £8m in switching compensation - has your provider paid out?
More than 100,000 customers have received compensation after changing providers, but is now a good time to switch energy suppliers?
-
Moving home: why failing to share your new address could cost you money
When you move home you’ll want to share your new address with family and friends – but being slow to update your contact details with councils, banks and the DVLA can be costly
-
Skipton Building Society to offer deposit-free mortgages for “trapped renters” - everything you need to know about 100% deals
Everything you need to know about how to get a mortgage with no deposit
-
Stamp duty: are you entitled to a tax refund worth thousands?
There are plenty of reasons why homebuyers may be entitled to a stamp duty refund, but it’s important to only claim if you’re eligible for a refund (and beware the claims management companies)
-
House price hotspots: 50 areas where property prices have shot up the most
Which areas have seen the strongest house price growth over the past decade? Discover the towns and locations around the UK where property prices have more than doubled.
-
Faster mortgage support for Universal Credit claimants – what it means for you
If you claim Universal Credit, you can now get quicker support with paying your mortgage. We look at when you can get it and how to access it
-
Should I fix my mortgage rate?
Interest rates are expected to rise again on the back of stubborn inflation, before falling next year. We look at the pros and cons of fixing your mortgage rate and what to consider if you need to remortgage soon.
-
Selling your home: avoid these mistakes to get the best possible price
From boosting kerb appeal to clearing clutter, there are crucial steps to take to ensure you get the highest price when selling your home
-
Interest rates rise to 4.25% - what does it mean for your money?
The Bank of England has increased the base rate for the 11th time in a row. We look at whether rates could rise further this year, and what the latest hike means for your mortgage and savings
