Mortgage help woe: Homeowners who lose job may face initial lack of support with mortgage payments

Homeowners who struggle with their mortgage payments due to losing their job may have to build up significant arrears before they get government help. We explain why

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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 (opens in new tab), 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 (opens in new tab), 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 (opens in new tab) (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

Katie is staff writer at The Money Edit. She was the former staff writer at The Times and The Sunday Times. Her experience includes writing about personal finance, culture, travel and interviews celebrities.  Her investigative work on financial abuse resulted in a number of mortgage prisoners being set free - and a nomination for the Best Personal Finance Story of the Year in the Headlinemoney awards 2021.