Research and analysis

Impact Assessment of Support for Mortgage Interest Loans

Published 6 May 2025

DWP research report no.1094  

A report of research carried out by IFF Research Ltd on behalf of the Department for Work and Pensions.

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First published May 2025. 

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Views expressed in this report are not necessarily those of the Department for Work and Pensions or any other government department.

Voluntary statement of compliance with the Code of Practice for Statistics

The Code of Practice for Statistics (the Code) is built around 3 main concepts, or pillars, trustworthiness, quality and value:

• trustworthiness – is about having confidence in the people and organisations that publish statistics
• quality – is about using data and methods that produce assured statistics
• value – is about publishing statistics that support society’s needs for information

The following explains how we have applied the pillars of the Code in a proportionate way.

Trustworthiness

This research was carried out by IFF Research on behalf of DWP (Department for Work and Pensions). IFF are certified to ISO/IEC 27001:2013 standards for information management and security and are registered with the Data Protection Commission. IFF also comply with industry standards; they are a member of the Market Research Society (MRS), and ESOMAR (World Association of Marketing Research Professionals).

We have worked with DWP to understand the aims of the research. The design, delivery and analysis were carried out impartially, and comply with the MRS (Market Research Society) Code of Conduct.

Full transparency regarding research methods has been provided to DWP at every stage, and all research materials were designed with input from DWP. Anonymised microdata, data tables, data file specifications and detailed methodological information are supplied alongside this report to allow DWP to replicate and test the data. All differences between sub-groups noted in the text in the report have been statistically tested. For more information, please see the Methodology Section of the Technical Annex.

Research ethics were considered at design stage and throughout the project. It was recognised that many research participants have been through difficult and traumatic experiences, since SMI is often required by people who have previously been able to afford to buy a house from their own income but have experienced a life event which makes this difficult or impossible, putting them at risk of losing their home.

For example, processes were put in place during fieldwork to support research participants and interviewers.

Quality

This evaluation has used a Theory-based Approach, compliant with the guidelines laid out in the Magenta Book^{[footnote 1]}. DWP developed a Theory of Change, which IFF reviewed and advised on as an external consultant.  IFF developed an Evaluation Framework which provided structure to the research and ensured it stayed focused on the research aims set by DWP.

The research relies in part on quantitative survey data. The survey was carried out using a design approved by DWP and using an RPS (Randomised Probability Sampling) approach. Data was gathered by our dedicated telephone interviewing team, who all receive a full training programme before they start working on projects. Telephone interviews are recorded, and a dedicated QA (Quality Assurance) team are tasked with random checking of interviews to ensure they meet quality standards.

The resulting data was generated in a replicable way through a script devised by our programming team, and QA checked by 2 researchers, and further checked by the DWP research team. It was weighted to ensure representative results, using techniques approved by 2 senior research team members. For more details, consult the Methodology Section of the Technical Annex.

Qualitative interviews were all carried out by trained recruiters and interviewers, using research materials and confidentiality protocols agreed with DWP. Data was analysed using qualitative frameworks in Microsoft Excel, designed to be linked back to the evaluation framework.

Reporting outputs were written by our research team and quality assured by senior research team members, as well as by the DWP research team.

Value

The findings of this research report have improved the housing welfare evidence base and provided further insight into homeowners that utilise the Support for Mortgage Interest loan.

The research will be used to review the aims and impacts of the SMI scheme. It will feed into wider discussions on how the Department for Work and Pensions can best deliver the policy and ensure homeowners continue to be protected from possession.

Executive Summary

This report provides insight into the impact of Support for Mortgage Interest (SMI), a policy introduced to prevent low-income homeowners from losing their homes by providing a loan to them, which makes a contribution towards their mortgage interest. It also looks at how the policy has been carried out. The report is supported by a survey and in-depth interviews with people receiving the loan (see Chapter 1), and 6 interviews with mortgage lenders (see the Lender Annex). Surveys and interviews took place between December 2023 and October 2024 and aimed to show if SMI was achieving its policy goals as well as understanding the impact on recipients’ lives.

The research found that SMI reached the intended group of people (see Chapter 2); those interviewed were in mortgage arrears and without other realistic options to make their mortgage payments. Recipients rarely said that lenders had referred them to SMI. Although without a statistical calculation of impact, it is not possible to say exactly how many SMI loans are going to households which could afford to pay their mortgage in other ways, it seems unlikely that this is a substantial problem for SMI.

The recipient survey shows that the change in eligibility rules for SMI in April 2023 did change the profile of new SMI recipients compared to those claiming under the older rules (see Chapter 2). There is no evidence that recipients claiming under new rules are less in need of help; this suggests that the changes have not diluted the focus of SMI on the group of people it is intended for.

In terms of carrying out the policy (see Chapter 3), the time it took to receive SMI from application was found to be long, due to the paper-based application process. This is likely to have blunted the impact of the otherwise well-received reduction in waiting time (from the start of a benefit claim to receiving SMI) from 9 to 3 months, since the application often takes longer than this. Recipients did not generally believe that they were protected from repossession during this time, causing stress to many.  Payment processes also had some shortcomings, often requiring recipients to discuss it with their lender.

Despite these issues, the positive impact of SMI was clearly shown (see Chapter 4), with hardship reducing, and recipients reporting that withdrawal of SMI would have severe impacts on their financial situation and well-being. In surveys and interviews recipients reported reduced arrears, and a reduced likelihood of losing their home. However, the survey showed that for a minority the impact of SMI was negative, with interviews suggesting this was often where payments did not provide a route out of arrears, due to high mortgage rates. The new option to move into employment was welcomed and used by new applicants for SMI, but had limited impact on previous recipients since most were unable to work because of their age or health.

Acknowledgements

We would like to thank the following.

The DWP analytical and policy colleagues for their valuable contributions to this research, particularly the Housing Research team.

The representatives of UK Finance and the Building Societies Association for their valuable help in securing lender participation.

We would also like to acknowledge and thank all the research participants for giving up their time to participate in interviews and providing valuable information on their experiences and views.

Authors

IFF Research
Lorna Adams
Sarah Cheesbrough
Sam Morris
Dani Cervantes
Georgia Mealings
Mohsin Uppal
Emily Clark

Glossary

Term	Explanation
Equity	The portion of the value of a property which is owned by the borrower as a result of their mortgage payments, as opposed to owned by the lender.
Equity Release	This is the process in which a mortgager (aged 55+) can receive some of the value of their home as cash, in exchange for the provider receiving equity in the home.
Interest-only mortgage	An interest-only mortgage does not reduce the capital owing; if an interest-only mortgage ends, the lender will still own part or all of the property.
Legal charge (on a property)	A legal charge on equity within a property indicates that a loan has been taken out against it, and entitled a lending institution to take payment should the borrower fail to make repayments on that loan. If it is a ‘first charge’ that means that if the borrower fails to pay their mortgage, it is prioritised for repayment relative to other charges that may be owing.
Mortgage rate	The rate at which interest is charged on a mortgage. This is set by the lender (and may be fixed or variable during the mortgage), but with regard to the general interest rate set by the Bank of England, which varies over time.
Mortgage repayments	Mortgage repayments usually consist of a repayment of capital, and a payment of interest. The interest payment is the charge made by the lender for the service of lending the money, while the capital repayment reduces the amount owed to the lender. SMI is designed to cover the interest payments only.
Possession	Possession, often referred to as repossession, is where a mortgage lender takes ownership of a property when the borrower is unable to pay the mortgage.
Repayment mortgage	A repayment mortgage includes payments toward the capital owed; at the end of a repayment mortgage, the borrower will typically own the property outright.
Universal Credit Journal	An online system through which Universal Credit recipients communicate with DWP, including potentially about their SMI claim.

Abbreviations

Abbreviations	In Full
AIR	Actual Interest Rate
AME	Annual Managed Expenditure
CA	Carer’s Allowance
DHP	Discretionary Housing Payment
DWP	Department for Work and Pensions
ESA	Employment and Support Allowance
FoI	Freedom of Information request
HB	Housing Benefit
IS	Income Support
JSA	Jobseeker’s Allowance
PC	Pension Credit
PQ	Parliamentary Question
PIP	Personal Independence Payment
QA	Quality Assurance
RPS	Random Probability Sampling
RQ	Research Question
SIR	Standard Interest Rate
SMI	Support for Mortgage Interest
UC	Universal Credit
UCHE	Universal Credit Housing Element

1. Introduction

This report provides findings from a Theory-based Evaluation of SMI (Support for Mortgage Interest), a policy introduced to protect low-income homeowners from possession by making a contribution towards outstanding mortgage interest payments. The evaluation, primarily based on fieldwork which took place between December 2023 and October 2024, seeks to provide understanding of the effectiveness of SMI in protecting recipients against possession (sometimes referred to as repossession) of their homes, and the wider impact on their financial and housing circumstances.

1.1 Support for Mortgage Interest

1.11 The policy

SMI is a long-standing policy, introduced as a benefit for homeowners with mortgages experiencing hardship. It makes a payment toward the interest due on the mortgage, but is not intended to cover full repayment of the mortgage.

SMI also has a secondary role; while for most recipients it is a support scheme to pay mortgage interest on an existing mortgage, disabled people (if receiving certain benefits) are permitted to purchase a home using the scheme, or to borrow funds to make adaptations to their home for their disability.

SMI was converted to a loan scheme in 2018, with the loan secured against the value of the property via taking a legal charge. Repayment of the SMI loan is limited to any available equity when the property is sold, transferred or when the claimant dies. This transition immediately resulted in a great reduction in the number of households receiving SMI, peaking at around 16,470 in May 2019, compared to more than 100,000 before March 2018^{[footnote 2]}.

Eligibility for SMI has, from the outset, been conditional on claiming an income-related benefit, such as Jobseeker’s Allowance (JSA), Employment and Support Allowance (ESA), Pension Credit (PC), and more recently Universal Credit (UC). Until April 2023, an individual of working age would need to have been claiming an unemployment-related benefit for more than 9 months, and UC recipients could not receive any earned income to claim SMI.

SMI payment amounts are not tied directly to the rate on the particular mortgage claimed for, but to an average ‘standard interest rate’, based on the average mortgage rate published in Bank of England statistics. Despite regular updating of this rate, it is at the time of writing (February 2025) lower than the rate payable on any new mortgage due to recent interest rate rises but generally higher than the rate on older fixed-rate mortgages.  

The loan is also capped at an outstanding mortgage value of £200,000 for working age recipients and £100,000 for pension age recipients who applied post pension age^{[footnote 3]}, also referred to as the ‘capital limit’^{[footnote 4]}. This means those claiming for an outstanding mortgage balance in excess of the applicable amount will receive payments toward mortgage interest calculated as if they owed £200,000 or £100,000.

1.12 Cohort 1 and Cohort 2

Changes were introduced in April 2023 to extend eligibility to working households on Universal Credit, and to reduce the waiting period for eligibility from 9 months to 3 and allow for SMI claims to restart without serving the qualifying period where short breaks in qualifying benefits occurs for less than a six-month period (e.g., due to a benefit sanction).

Beneficiaries of these changes are referred to in this research as ‘Cohort 2’ recipients. Those who would have been eligible previously are referred to as ‘Cohort 1’ recipients, even if they started claiming after the changes were made in April 2023.

1.2 Evaluation

1.21 Reasons for evaluation

DWP identified a need for greater understanding of the effectiveness of SMI in protecting recipients against possession of their homes, and the wider impact on their financial and housing circumstances. There was previously little evidence available to the department on the impact of SMI on recipients since the change from a benefit to a loan in 2018.

1.22 Aims and scope of evaluation

The main aim of the research is to assess the impact and effectiveness of SMI in helping recipients who own their home with a mortgage, to keep them in their homes and protect them from possession. DWP are also interested in the effectiveness of SMI in terms of meeting mortgage payments, and the wider impact on financial and housing circumstances^{[footnote 5]}.

The research was envisaged to take a theory-based approach, using a range of quantitative and qualitative techniques, united and directed by a Theory of Change and evaluation framework produced through a scoping stage. While the evaluation seeks to understand impact, the scope for the research does not include measuring impact numerically^{[footnote 6]}, nor in terms of economic impact, for example to produce a cost-benefit analysis.

1.3 Scoping and evaluation structure

1.31 Approach to scoping

Initial research questions were set by DWP in the planning stage during 2023, but were further refined in a scoping stage led by IFF Research, from December 2023 to January 2024. This included stakeholder discussions, and an initial evidence review.

The process focused on developing a full understanding of the policy, culminating in the production of a Theory of Change, a single diagram which outlines how the policy is intended to work, and provides a structure for the evaluation. It considers the inputs to the policy, activities which are involved, the immediate outcomes and long-term outputs of the policy for claimants, lenders and the government.

1.32 Theory of Change

A Theory of Change was developed and reviewed by DWP using the outcomes of sessions held with internal DWP stakeholders from the relevant policy, analysis and operations teams. This model was then reviewed by IFF Research, resulting in amendments agreed with DWP. The completed model was then reviewed in a short session with all stakeholders. This provided support to the IFF team when assessing the policy, by outlining its intended objectives.

1.33 Evaluation questions

The next stage of the scoping was to build on the Theory of Change to produce final evaluation questions, via discussion within the research team following the sessions. The evaluation questions drew on 3 sources:

• The Theory of Change
• DWP input at inception stage
• Stakeholder discussions

A total of 11 research questions were produced through this scoping process:

RQ1. What are the main reasons recipients apply for SMI in the first place?

RQ2. To what extent does SMI impact on lenders’ forbearance practices?

RQ3. Do lenders understand SMI, and what is their experience of the scheme?

RQ4. What are recipients’ experiences of navigating the SMI system?

RQ5. Are SMI loans seen as a temporary or long-term solution to financial difficulties?

RQ6. Does the current level of SMI provide sufficient support?

RQ7. To what extent does the removal of the zero earnings rule incentivise work for current recipients?

RQ8. Are the current capital limits sufficient to provide the protection needed by recipients?

RQ9. Should the criteria for eligibility be altered or extended?

RQ10. To what extent have the recent changes to SMI eligibility affected recipients’ decisions to apply?

RQ11. How, and to what extent, does the scheme prevent arrears and possessions?

Next, the research questions and Theory of Change were brought together to determine assumptions (or elements of the policy) which could be tested by the evaluation, please see the Methodology section of the Technical Annex.

For example, the SMI policy assumes, relevant to answering RQ1 (“What are the main reasons recipients apply for SMI in the first place?”), that recipients are unable to pay their mortgages without support. This is an assumption which can be tested through the evaluation, to prove the Theory of Change (and therefore the logic behind the policy) is valid.

In order to test assumptions, potential measures were then scoped out. For the example above, testing could be achieved by exploring recipients’ views of why they claimed SMI, and whether they sought first to access any alternative forms of support. Together, these measures could prove that the SMI policy is needed because recipients could not pay their mortgage and did not have other support.

Finally, each measure was assigned in a practical sense to an element of the evaluation; for example, the recipient view of whether they required SMI was measured through qualitative recipient interviews, and the extent of seeking other forms of support was measured through the quantitative recipient survey.

All this information was gathered into an evaluation framework document, containing full lists of research questions, assumptions, measures, and methods of measuring. This evaluation framework was used throughout the research to guide the process, and has been used to compile this report. Each chapter ends with a summary of the findings relevant to the research questions above.

A copy of the Evaluation Framework is included in the Methodology section of the Technical Annex.

1.4 Methodology

1.41 Research elements and timeline

The research included the following elements:

• Scoping, as outlined above (December 2023 to January 2024)
• Six qualitative interviews with mortgage lenders (February to September 2024)
• 25 qualitative interviews with Cohort 1 SMI recipients (March 2024)
• A quantitative telephone survey of 1,408 SMI recipients, including a pilot (July to October 2024)
• 20 qualitative interviews with Cohort 2 SMI recipients (September to October 2024)

Elements from all of these are included in this report, although due to the limited number of lender interviews, except where specified, insight from this group is included only in the appendices.

1.42 Methodology

Recipient survey

The recipient survey design and fieldwork periods were split over a pilot and a mainstage. Sampling frame and contact details were sourced from DWP records of SMI recipients, based on SMI claims paying to recipients across Great Britain (England, Scotland and Wales) in a six-month period running from July to December 2023. The survey was designed to take around 20 to 25 minutes to complete, and all fieldwork was carried out by telephone. For respondents based in Wales, all communication, including advanced letters and the administration of the survey itself was offered in Welsh as well as English.

To minimise sources of bias in the survey, this was an RPS (Random Probability Sampling) survey. This means all sample records for recipients were treated equally (contacted an equal number of times, unless a definite outcome is achieved such as a refusal or completed survey). However, not all records needed to be sampled to obtain the 1,400 survey responses sought. In order to allow analysis of key subgroups, oversampling was applied to Cohort 2 and recipients whose primary benefit was Income Support.

Sampled SMI recipients were first sent advanced letters giving notice of the survey in May 2024, allowing for an opt-out period. The pilot survey then took place in July 2024, delayed by the 2024 election. Once pilot fieldwork was completed, work began on updating the questionnaire and conducting the sample draw ahead of the mainstage survey fieldwork period, which took place from August to October 2024.

Overall, the response rate relative to the sample uploaded for telephone fieldwork was 21%, and 1,408 completed surveys were achieved. Due to oversampling and variation in response rate, the raw data produced by telephone surveys is not representative of the population as a whole. To be representative of the population, a non-response weight and a sampling weight were applied, so that survey results reflect the sampling frame supplied by DWP.

The survey remains subject to sampling error. The estimated maximum error margin (i.e., on a result of 50%) for weighted survey results is ±2.7%. So, if the weighted survey data indicated that 50% of recipients were happy with an element of SMI, we could be 95% certain that the true result if the whole population were surveyed would be between 47.3% and 52.7%. This is a maximum error margin; for results closer to 0% or 100% (e.g., if 90% of recipients were happy with an element of SMI) the error margin would be narrower.

Further details of the methodology for the survey can be found in the Technical Annex.

Qualitative recipient interviews

In-depth qualitative interviews were carried out with SMI recipients in both Cohort 1 and Cohort 2. A total of 25 interviews took place with Cohort 1, and 20 with Cohort 2.

For Cohort 1, sample was supplied by DWP, as for the quantitative recipient survey. A purposively selected sample of 149 records (to match the desired profile of interviews) was drawn. For Cohort 2 interviews, 116 records of recontact sample from the quantitative recipient survey were used.

All interviews, which were designed to last 45 to 60 minutes, took place via telephone with one of IFF’s team of trained telephone interviewers, as well as members of the research team. Precautions were taken for data security and to maintain confidentiality. All recipients were emailed a consent form to read through before their interview, detailing aspects such as how their data would be used and stored, and that the interview would be recorded with their consent. As the nature of recipients’ experience had often been of a sensitive nature, safeguarding and interviewer support processes were also put in place.

A response rate of 19% relative to contacted sample was achieved for the Cohort 1 interviews, and 23% for the Cohort 2 interviews. Analysis was carried out using a bespoke excel-based analysis framework, supported by an analysis meeting attended by the research team. The framework was structured around thematic headings relating to the research objectives. Individual interviews could then be compared to determine the commonality of experiences.

Further details of the methodology for the interviews can be found in the Technical Annex.

Qualitative lender interviews

Six lender interviews were also carried out, with sample sourced from the Building Society Association and UK Finance, covering larger and smaller banks, building societies and lenders. The interviews were designed to last 45 to 60 minutes, and were conducted via Microsoft Teams, utilising the transcript function only. While within the 6 interviews all of the groups listed above were represented, sample availability and willingness of individuals to take part did significantly delay the research. All of the Lender qualitative interviews took place via Microsoft Teams with one of IFF’s experienced research team.

Few sample records were available to researchers; a response rate of 86% was achieved. Due to the small number of interviews carried out, findings from these, which were analysed through an Excel-based analysis framework and analysis meeting, are summarised in a separate annex. Further details of the methodology for the interviews can be found in the Technical Annex.

1.43 Analysis conventions

Recipient survey

All results shown, unless otherwise stated, are weighted to be reflective of the views and experiences of recipients as a whole (see Technical Annex section 1.58), rather than purely representing the views of survey respondents. In this report, only statistically significant differences between sub-groups of SMI recipients^{[footnote 7]} (see Technical Annex section 1.59 ) are shown in the text, in order to avoid the risk of including random variation. Significant differences are shown in charts with a star.

Survey respondents may sometimes express opinions which are incorrect, or may not accurately recall their experiences or situation. This type of error cannot be quantified.

Qualitative interviews

Qualitative interviews represent the range of views and opinions among those taking part, and are intended to give in-depth insight into the reasons for people’s views and actions. Results from interviews are not intended to provide insight into numerical prevalence of those views. For this reason, numeric estimates (i.e., percentages of interviewees making a particular statement) are not given. Individual experiences and quotes represent the views of interviewees. Where we know there to be inaccuracies in a quote, this is stated, but quotes are not routinely tested for accuracy, and represent the views of participants, not of IFF Research or DWP.

2. Decisions to use SMI

This chapter summarises SMI recipients’ awareness of SMI prior to applying, and their reasons for applying, and explores the resulting profile of recipients. It finds that applications are strongly motivated by need, with most recipients having experienced an unexpected trauma in their lives, leading to their inability to repay their mortgage. It finds that changes to eligibility for Cohort 2 have succeeded in widening the recipient base for SMI, although the research cannot prove all newly eligible borrowers are being reached.

2.1 Why apply for SMI?

2.11 Becoming aware of SMI

Among recipients, DWP dominated as a route for learning about SMI, as shown in Figure 2.1; more than half of recipients (53%) heard via this route. Qualitative interviews with recipients supported this view. Recipients interviewed in both cohorts mentioned primarily services within DWP, for example their Universal Credit journal, work coach or most often Jobcentre Plus. Not all had been successful immediately; one mentioned that they had asked in their UC journal, but had not found out about SMI until searching online themselves.

When I went on to my journal and I asked about SMI, someone said, ‘oh, you have to speak to your… case worker, and they’ll send you a form to fill out.’ But I never got hold of my caseworker… [it took] a few months to try and get this form – Cohort 2, Male, 55-64, Large claim.

Others also mentioned learning about SMI online, although they were typically unable to recall where exactly they had heard. Some had done research themselves on ways out of their situation, consulting multiple sources.

Yeah, I thought it was a good scheme, you know. I thought, oh, if I could go onto that it would really help me out – Cohort 2, Male, 45-54, Average claim.

In Cohort 1, where recipients had previously received the SMI benefit, qualitative interviews provided more detail, with recipients saying awareness of SMI frequently came via a letter about the switch from a benefit to a loan from DWP, or occasionally from a debt advice charity. Cohort 2 recipients tended to hear from DWP by phone or online, as expected since initial contact for this group is normally by telephone.

I think I was contacted by Universal Credit [on the phone]. They basically asked me if I wanted to go ahead with [SMI] – Cohort 2, Female, 55 to 64, Average claim.

The survey suggested that it was much more common to hear through support organisations such as Citizen’s Advice (12%) or Jobcentre Plus (10%) than from a mortgage lender (5%). Some instances of initial contact about SMI being made by lenders were found in interviews, where a borrower had contacted them worried about their mortgage. Another had learned about SMI through an Independent Financial Advisor (IFA), and one through their Macmillan nurse.

For longer claims, there were some instances of recall issues in interviews (in Cohort 1), where recipients could not remember how they became aware of SMI, often mentioning that they had been transferred over from the benefit to the loan but unable to give much detail.

The survey shows that many SMI claims are long-standing; 77% of recipients have owned their home longer than 15 years, so in many cases they are recalling events from many years ago. Many qualitative interviewees gave dates for starting SMI considerably before the date on DWP records, suggesting that events during the claim (e.g., switching from a benefit to a loan, changing benefit status) may reset the claim length record.

Those applying for SMI recently (since April 2023) did not give markedly different answers to other recipients, although they were slightly more likely to have learned about SMI from another online source ^{[footnote 8]}.

Figure 2.1 How recipients first heard about SMI

Source: SMI Evaluation recipients survey. Base: All (1,408). Cohort 1 (1,135), Cohort 2 (273). B1. How did you first hear about SMI? Respondents could provide more than one answer.

Some other key sub-group differences emerged in the survey. Those in employment, and those on UC (overlapping groups) were more likely than others to hear about SMI through Jobcentre Plus (15%). In general, older people were more likely than others to hear about SMI through DWP, ranging from less than half among under 45s (43%) to nearly two thirds among over 75s (61%).

2.12 Deciding to claim

Findings from the recipient survey [Figure 2.2] and both Cohort 1 and Cohort 2 interviews, showed a range of reasons why respondents initially applied for SMI, however a life event affecting the recipient’s or their partner’s ability to work or cause loss of income dominated. The most common broad reason for needing an SMI loan or benefit was loss of income (71%).

The most commonly cited single response option in the recipient survey was that either the respondent or their partner had to stop working due to a disability (42%). A further 7% stated that either they or their partner had to stop working due to caring responsibilities, meaning that half of respondents initially applied for SMI due to a reason associated with disability. This was higher^{[footnote 9]} amongst Cohort 1 recipients on legacy benefits (57%), those who first claimed prior to April 2018 (56%) and ESA recipients (60%), but lower amongst PC recipients (24%).

Other than reasons associated with disabilities, this could be due to a respondent (15%) or their partner (2%) losing their job; this was higher for respondents in receipt of UC (18%)^{[footnote 9]}. A change in personal circumstances, such as a divorce or a bereavement (12%) was also stated as a reason to claim.

General loss of income was higher^{[footnote 9]} amongst UC (77%), ESA (76%), and PIP (74%) recipients, but lower^{[footnote 9]} amongst PC recipients (49%).

Very few recipients applied in order to make disability adaptations to their home (<1%, only 3 respondents), indicating that this additional stated purpose of SMI is rarely used.

Figure 2.2 Reasons why recipients first applied for SMI

A5. Why did you originally need to apply for an SMI loan? Base: All respondents (1,408). For legibility, excludes Unable to work due to other caring commitments (1%), my partner stopped working to care for me (1%), applied for SMI in order to pay for disability adaptations to home (<1%), other (1%), and prefer not to say (<1%).

Findings from the qualitative interviews also corroborated this, with a large proportion stating that they needed the extra income and needed to lower outgoing costs. Life circumstances had usually led recipients into financial hardship which meant they were struggling to keep up with mortgage payments.

This was often because their household income had decreased, due to not being able to work due to a disability or illness, or a change in their household situation causing lost income and they needed the SMI loan to replace this. Sudden illness, disability or mental health problems, and less commonly redundancy or sudden failure of businesses (perhaps particularly at Cohort 2) were a recurring theme throughout:

It’s a bit of a lifeline… I’m trying to think of ways of dodging the bullets here, you know. It’s affected my mental health. I was earning pretty good money when I was working to go from like that to nothing really is quite depressing – Cohort 2, male, 55 to 64, large claim.

In some cases, breakdown of relationships played a role, as the remaining parent in the home was suddenly a single parent and unable to work.

Many said they applied for the SMI loan as they didn’t want to lose their home, and so they would accept it being a loan if it meant it would prevent them having to move out. Some respondents mentioned spontaneously that they were determined to avoid losing their home, in some cases for long term financial reasons (not wanting to rent into retirement) but also due to the emotional and psychological impact of moving, particularly where they had already experienced other recent traumatic events. In some cases, disability played a role:

Because we wanted to stay in our home. It was all converted for my disability …and it was our home, our children grew up there… – Cohort 1, Female, 55 to 64, Large claim>

Often, recipients had been reluctant to take out anything described as a loan, but did not perceive a choice:

I wouldn’t have been able to afford my mortgage. The [SMI benefit] I used to get, once they took that away, I didn’t have that money to put towards my mortgage, so I had to take [the loan]. I was backed into a corner – Cohort 1, female, 45 to 54, Average claim.

Only rarely did interviewees mention seeking advice before making a decision, one from an IFA, and a couple from family friends with some knowledge. Some had given their options some thought, and decided SMI was the best available to them:

I still have more money than if I’d left and gone into a long-term tenancy – Cohort 2, Male, 45 to 54, Average claim.

A small number of recipients surveyed (4%) stated SMI was offered to them or they automatically received it. Some Cohort 1 interviews were carried out with this group; those recipients felt they had done as DWP told them to by transferring. They often had quite limited knowledge of how SMI worked or that it needed to be paid back; one interviewee was shocked to get a letter saying they had borrowed £13,000 in SMI.

Another was worried that the SMI loan would be inherited as a debt by her children. In one case a respondent got into unexpected difficulties as their mortgage was coming to an end, since they had not realised that they could no longer take out other loans or equity release products against the value of their home, and they were not eligible to extend the mortgage term or remortgage due to their age and/or credit rating. SMI is always secondary to primary mortgage lenders and should not prevent remortgaging, but some recipients also reported that lenders were unwilling to consider them in any case. Equity release providers will only consider cases without any charges on the property, so SMI recipients are not eligible for this.

2.13 Considering alternatives

While those interviewed rarely mentioned other options they had tried before SMI other than borrowing from family and friends, findings from the survey showed that recipients had tried a range of options before taking up an SMI claim. Three quarters (74%) of recipients mentioned that they reduced spending other than by postponing or not paying bills [Figure 2.3]. This was even higher^{[footnote 10]} amongst Carers Allowance recipients (91%), and ESA recipients (78%), but lower^{[footnote 10]} amongst PC recipients (63%).

Most of this group also said when asked that they had cut spending on things which could be regarded as essentials, including:

• Food (83% of those reducing spending); higher^{[footnote 10]} amongst UC recipients in Cohort 1 (88%), and lower amongst PC recipients (71%)
• Other essentials such as clothes and shoes (75%); lower^{[footnote 10]} amongst PC recipients (66%)
• Energy or water (65%); higher^{[footnote 10]} amongst IS recipients (79%)

Overall, around 4 in ten stated that they had sought help from their lender (43%). This was higher^{[footnote 10]} amongst UC recipients at Cohort 1 (53%), and Cohort 2 (54%) recipients, but lower^{[footnote 10]} amongst PC (31%) recipients

Those seeking help from their lender most often received^{[footnote 11]}:

• a mortgage holiday (28% of those seeking help); higher^{[footnote 10]} amongst UC recipients (34%) and lower^{[footnote 10]} amongst PC recipients (13%)
• a move to an interest-only mortgage (15%)
• Extending the mortgage term (12%)

Many recipients also postponed or did not pay other bills (43%). More than a third had also run down their savings (36%) or borrowed money (35%). Those seeking to borrow money were usually successful (78%), and most often borrowed informally from friends and family (86% of those successfully borrowing), although some borrowed from banks or building societies (24%), or from specialist loan companies (14%). There were also instances noted by recipients in the qualitative interviews of  mortgage holidays being allowed by lenders before resorting to SMI (e.g., not having to pay for 6 months to give them a chance to get back on their feet).

Only around a fifth of recipients (19%) said they had looked for work before seeking to use SMI; this was higher10 amongst Cohort 2 recipients (32%), Carers Allowance recipients (30%), and UC recipients (25%).

Figure 2.3 Actions taken prior to first SMI payment

B2. Prior to your first SMI payment being made, did you try any of the following to try to make your mortgage payments? Base: All respondents (1,408). Answer codes under 10% not shown (Considered selling my home: 3%, Used benefits: 1%, Approached a charity: 1%, Took in a lodger: <1%, Cashed in my pension: <1%, Other: 3%, None of the above: 5%.)

2.2 Coverage of SMI

2.21 Profile of SMI recipients

Most recipients of SMI responding to the survey were not in employment (89%), and most of these were out of work due to long-term sickness or disability (55% of all recipients) or retired (18%). A smaller proportion, 16%, of recipients were unemployed, other than due to disability or retirement.

For Universal Credit claimants before April 2023, moving into employment would result in a loss of entitlement to SMI. Therefore, nearly all those employed were in Cohort 2^{[footnote 12]}. Among Cohort 2 recipients, nearly half (46%) were employed, split between full time employment (15%), part-time employment (18%) and self-employment (10%). However, only 5% were unemployed^{[footnote 13]}; many Cohort 2 recipients were still out of work due to long-term sickness or disability (33%), although few were retired (3%).

The survey also gathered data on the working status of the respondents’ partner^{[footnote 14]}; across both Cohorts about two-thirds (67%) were in a working-age household^{[footnote 15]} where no adults were employed. About one in 5 (19%) lived in a household where either the respondent or their partner was retired. Only 13% of recipients lived in a household where either the respondent or their partner was employed, although this rose to over half (54%) among Cohort 2 recipients.

By the nature of the scheme, all SMI recipients would be expected to claim some kind of benefit. Benefits claimed are shown in Table 2.1 and Table 2.2. Seven in ten recipients (70%) claimed disability related benefits, and just under half (44%) claimed out-of-work benefits.

Recipients taking part in qualitative interviews often mentioned a changing landscape of benefits over time, in particular shifting in and out of different levels and combinations of disability benefits due to successive DWP assessments. Pension Credit, however, was a relatively stable benefit once provided.

Table 2.1 Benefits claimed by SMI recipients, Cohort 1 vs Cohort 2, self-reported**

	Respondent, Cohort 1	Respondent, Cohort 2
Personal Independence Payments (PIP)	64%*	44%
Universal Credit (UC)	38%	87%*
Employment and Support Allowance (ESA)	45%*	13%
Pension Credit (PC)	20%*	3%
Income Support (IS)	6%*	1%
Carers Allowance	6%	7%
Don’t know	2%	5%*

Notes to Table 2.1

*indicates that this sub-group’s response is proven (to a 95% confidence level) to be higher than that for all other sub-groups combined.

**note some recipients may be uncertain or incorrect regarding their benefit status when asked, or it may have changed since the point of sampling.

Table 2.2 Benefits claimed by SMI recipients and their wider households, self-reported**

	Respondent	Anyone in household
Personal Independence Payments (PIP)	62%	69%
Universal Credit (UC)	44%	47%
Employment and Support Allowance (ESA)	40%	42%
Pension Credit (PC)	18%	19%
Income Support (IS)	6%	6%
Carers Allowance	6%	11%
Don’t know	1%	4%

Notes to Table 2.2

**note some recipients may be uncertain or incorrect regarding their benefit status when asked, or it may have changed since the point of sampling.

SMI recipients overall tend to be older, even when compared to mortgage-holders as a whole. Most (56%) recipients were over the age of 55 [Figure 2.6], compared to 19% in the Family Resources Survey^{[footnote 16]}. The most common age band was 55 to 64 (36%). A smaller number (12%) of recipients were under the age of 45, compared to 53% of mortgage-holders nationwide.

Cohort 2 SMI recipients are markedly younger; few are over 65 (6%), and about a quarter are under 45 (29%), although few are under 35 (5%). This is much closer to the profile seen in the Family Resources Survey for mortgage-holders, where 3% are over 65, although there are differences: 22% of mortgage-holders are shown to be under 35. However, the typical factors leading to an SMI claim – disability or sickness – are more likely to occur later in life.

Figure 2.4 Respondent age, overall and by cohort

F2-Resp-Age. Respondent age. Base: All those who provided household size (1,382). 18-24 category not shown due to small size. Prefer not to say (15= 1%)

When asked about household income [Figure 2.5], around half (45%) of recipients preferred not to say. When considering those who did divulge household income, 9 in ten (91%^{[footnote 17]} earned less than £25,000 per year, and more than half (58%) earned less than £16,000 per year.

Figure 2.5 Recipient household income, overall and by cohort

F8. How much, together, is your household’s income before tax? Base: All respondents (1,408). For legibility the chart excludes Prefer not to say (45%) and Don’t know (4%).

Just under half (47%) of recipients lived on their own; a further quarter (25%) lived with one other person. The average household size was 2 people, and was considerably larger for Cohort 2 (2.8 people) than Cohort 1 (1.9 people). Around a quarter (27%) of recipients lived in a household with children, compared to 46% of households with a mortgage in the Family Resources Survey^{[footnote 16]}.

Household types varied substantially by cohort, as shown in Table 2.3. Building on the data in the table to look at disability within household type, single households without children (90%) and couples without children (87%) each experienced higher rates of disability than couples with children (77%) and single households with children (71%).

Table 2.3 Household types in SMI recipient households, by Cohort

Household type	% of SMI recipient households	% of Cohort 1 households	% of Cohort 2 households
Single – no children	59%	63%*	32%*
Single – children	17%	14%*	42%*
Couple – no children	14%	14%	11%
Couple – children	10%	7%	15%*

DWP sample data for survey respondents. Base: All (1,408).

In terms of ethnicity, four fifths (79%) of recipients identified at White British or Irish, compared to 88% of mortgage holders in the Family Resources Survey16. No one ethnic minority dominated; in total 2% of recipients identified as White Other; one in ten (9%) as Asian/Asian British; 5% as Black/African/Caribbean/Black British; 2% as Mixed/Multiple Ethnic Groups; and 1% as Other Ethnic groups.

All in all, just under one fifth (17%) identified as ethnicities that might be classed as an ethnic minority group, rising to 19% if White Other is included.

Over four fifths (85%) of respondents stated that they had a disability [Figure 2.6], far above the 25% saying one or more adult household members had a disability or long-term illness in the Family Resources Survey^{[footnote 16]}. Of these disabled SMI recipients;

• Four fifths (79%) said that their disabilities limit their activities all of the time
• One fifth (19%) said it limits their activities some of the time
• A very small percentage (2%) said their disability does not limit their activities

Over half (56%) of respondents who do not live alone stated that someone else in their household has a disability. In total, 23% of households using SMI contain multiple disabled people, and 89% of households overall contain someone with a disability.

For some people, disability was key reason for applying for SMI:

Because we wanted to stay in our home. It was all converted for my disability …and it was our home, our children grew up there… – Cohort 1, Female, 55 to 64, Large claim.

Figure 2.6 Disability status of respondents

F3. Do you have any physical or mental health conditions or illnesses lasting or expected to last for 12 months or more that limits your or their day-to-day activities? Normal day to day activities include everyday things like eating, washing, walking and going shopping. Base: All respondents (1,408). For legibility, excludes don’t know (1%) and prefer not to say (1%).

As can be seen in Table 2.4, there are some regional variations in the usage of SMI; relative to the number of households with a mortgage, SMI is much more likely to be used in Wales (62% higher), the North West (42% higher), and West Midlands (20% higher) and less likely in the South East (23% lower), Scotland (20% lower), the East of England (16% lower) and London (11% lower). There is no clear pattern to these discrepancies, and Cohorts 1 and 2 show broadly the same pattern.

Table 2.4 Household types in SMI recipient households, by region

ONS Region	% of SMI recipient households	% of all GB households paying a mortgage
North East	5%	4%
North West	15%	10%
Yorkshire and the Humber	8%	8%
East Midlands	7%	8%
West Midlands	10%	8%
East of England	8%	10%
London	11%	13%
South East	12%	15%
South West	9%	9%
Wales	7%	4%
Scotland	7%	9%

DWP population data for survey, January 2025. Family Resource Survey, 2022-23.

2.22 Comparing Cohort 1 and 2 recipients

From the survey, when comparing both SMI cohorts, there were a number of differences, many of which relate to the eligibility rules for Cohort 2 which are more accommodating to younger, working-age people. Cohort 1 participants were more likely to:

• be older, 12% were over the age of 75 (vs. <1% in Cohort 2). The most common age group in Cohort 1 was 55 to 64 (38%), whereas for Cohort 2 it was 45 to 54 (36%)
• have disabilities (88% vs. 62% in Cohort 2) and disabilities that limit their activity all of the time (71% vs. 43% in Cohort 2)
• be out of work due to a long-term sickness or disability (58% vs. 33% in Cohort 2)
• have owned their home for more than 15 years (80% vs. 55% in Cohort 2)
• have lower amounts remaining on their mortgage (12% less than £25,000 vs. 4% in Cohort 2; 16% between £25,000 and £49,999 vs 8% in Cohort 2; and 9% with £200,000 or more vs. 16% in Cohort 2)
• live in a household without children (82% vs. 49% in Cohort 2)
• claim disability-related benefits (73% vs. 46% in Cohort 2), such as PIP (64% vs. 44%), ESA (45% vs. 13%), IS (6% vs. 1%)

2.3 Implications for policy

RQ1. What are the main reasons recipients apply for SMI in the first place?

It was identified at the scoping stage of this research that recipients should be unable to pay their mortgage without support, and that borrowers in arrears would need to be aware of the SMI loan scheme.

Positively for the scheme, all of those interviewed for the research appeared to be in the target group; they were in mortgage arrears and usually had obvious obstacles to paying their mortgage using their own resources. Many recipients were claiming SMI due to experiencing a traumatic life event. The profile of SMI recipients is dominated by those who have disabilities, illnesses or are otherwise unable to work; even in Cohort 2 which allows working recipients, many had experienced a major career setback, redundancy or a divorce.

This research was not able to determine reasons recipients do not apply for SMI, or whether there are significant numbers of non-applicants. This was explored by research in 2020 following the conversion of the SMI benefit to a loan^{[footnote 18]}.

RQ10. To what extent have the recent changes to SMI eligibility affected recipients’ decisions to apply?

The change in rules has been accompanied by a change in the profile of SMI recipients; while Cohort 1 recipients (from before the rule change) are primarily above retirement age and a large majority are disabled, Cohort 2 recipients are somewhat closer to the average demographic profile of mortgage holders in England, and some are working or have children.

That being said, there is no evidence that Cohort 2 recipients were in substantively less need than Cohort 1; they also tend to make larger claims (in terms of pounds per month) since their mortgages are at an early stage, which may increase the headline cost of SMI for government relative to the number of recipients. On the other hand, most recipients interviewed said that if they lost their homes they would expect to rent privately. This may mean claiming housing related support, such as Housing Benefit (HB) or Universal Credit Housing Element (UCHE). Since they are benefits, rather than loans, and rents are typically higher than SMI payments, this could incur greater costs for government overall.

3. Receiving SMI

This chapter explores the practical process of applying for and receiving SMI. It finds that while the process is easy for many applicants, there are widespread issues of reliability and ease of use. Understanding is the key barrier to easy application, but length of time taken for applications had more acute effects, reducing the practical effect of the generally positively received change in eligibility period for UC claimants from 9 months to 3 months.

3.1 Applying for SMI

3.11 Design and support

Information regarding the intended design of SMI can be found in section 1.22 of the Technical Annex.

Recipient experience of initial contact and form design

Recipients broadly remembered this process taking place in qualitative interviews, although they often had difficulty following it at the time. Usually, they had little difficulty obtaining the form, with many describing this as ‘easy’.

There were some Cohort 1 recipients who described receiving a letter about their SMI benefit changing into a loan. Most recipients reported the transfer to a loan being a straightforward process, requiring them to fill in a form that facilitated this transfer, although not all understood the implications.

In a few cases, requesting the form via the UC journal was not immediately successful, or took some time. Delays at this point were not uncommon, although they seemed less likely where the forms had been obtained in-person from a Jobcentre Plus or another support organisation.

For example, multiple recipients reported that they were told on enquiring that they would receive a call within 28 days; while this did usually happen, the delay to the initial discussion (which often led to a further referral for a call from another colleague, adding another waiting period) meant that it took many months to receive SMI, despite the shorter 3 month wait intended for those qualifying under Cohort 2 characteristics.

Several interviewees reported confusion among local DWP staff when they asked about SMI and for SMI forms:

[It was] an absolute nightmare… nobody in Universal Credit really knew much about it. To tell you the truth, even on the helpline… I was typing [in my UC journal] in capital letters: ‘Could somebody who knows what they’re talking about please get back to me. This is what I’m entitled to.’ Nobody even knew what department… to direct me [to] – Female, Cohort 2, 45 to 54, Small claim.

One person interviewed at Cohort 1 mentioned that it took them months to work out how to obtain the form; another at Cohort 2 mentioned that they had asked for the form from their work coach, and they had declined on the basis that it would arrive automatically later, which it did not, and he subsequently had to chase for it:

Initially I looked online to see how you could apply… the GOV.UK website… and there was nothing there! I contacted my work coach via my [UC] journal directly, and I said to him [that] I needed information. I said, ‘can you send me the forms out’ and initially, which I wasn’t very happy about, he said ‘we’re really busy, and we will send you the forms out when the time when the time’s right – Male, Cohort 2, 45 to 54, Average claim.

Some respondents, particularly in Cohort 2, felt that the SMI loan was difficult to find information on, which meant that making decisions about it was challenging. This then caused further stress as they weren’t sure if the loan would help them or not, even after applying.

[It] seemed like it was clouded in secrecy… [it was] quite a long and anxiety producing experience. The forms were hard to read and not very easy on the eye – Female, Cohort 2, 35-44, average claim.

Recipients’ sources of advice

Around two-thirds (64%) of all survey respondents stated that they had received all the support or guidance they needed to apply for SMI, with around a quarter (28%) stating the opposite. Those who applied for SMI between April 2018 and March 2023 (34%), and those who entered Cohort 2 due to the qualifying period only (43%) were more likely to say they did not receive sufficient support^{[footnote 19]}.

Two-thirds (64%) of respondents also stated that they found the DWP very helpful or somewhat helpful in making a claim for their SMI loan (Figure 3.1), with 18% stating that they were very unhelpful or somewhat unhelpful. UC recipients (23%), and those who made their first application between April 2018 and March 2023 (22%) were more likely than average to say DWP were unhelpful. Those aged 75 plus (73%) and in Cohort 1 in receipt of PC (70%) were more likely to say they found DWP helpful. 

Figure 3.1 How helpful recipients found DWP when making SMI claim

C10. Overall, how helpful have you found DWP in making your claim for an SMI loan? Base: All respondents (1,408). ‘Don’t know’ not shown for Cohort 2 (<0.5%).

From the perspective of recipients, just over half (58%) of survey respondents found their lender helpful when making their claim for SMI, with 16% finding their lender unhelpful (Figure 3.2). 12% of respondents did not speak to their lender. Cohort 2 recipients (44%) were more likely^{[footnote 20]} to say that their lender was very helpful.

There were also sub-group differences when broken down by Cohort 2 entry reason. Those who entered Cohort 2 due to receiving income only were more likely to say their lender was helpful (66%)^{[footnote 21]}.

SMI recipients that claimed UC were also more likely^{[footnote 21]} to say their lender was helpful (63%). Positively, those who had first applied for SMI since April 2023 were more likely to say their lender was very helpful (44%)^{[footnote 21]}, suggesting improving performance over time.

Figure 3.2 How helpful recipients found their lender when making SMI claim

C10. Overall, how helpful have you found your lender in making your claim for an SMI loan? Base: All respondents (1,408)

3.12 Implementation

Application process

Overall, more recipients said they found the process easy than difficult; 4 in ten (43%) said they found the application process easy, with one third (33%) saying they found it difficult.

Those that found it easy often said they couldn’t remember much about the application but felt like it was straightforward enough.

It worked well for me because it was all accepted and I followed the logical steps – Cohort 1, Female, 55-64, Large claim.

They sent me a load of forms … I had to fill them out and send them back. That was it. I then had to wait to see if I was accepted or not – Cohort 1, Female, 45 to 54, Average claim

As shown in Figure 3.3, over half (56%) of those that found it difficult gave reasons that could be classed as a lack of understanding of forms or processes, such as understanding the forms (29%), filling in the form correctly (19%) or knowing what information was needed (12%).

In interviews, those that found the application process easy said it was straightforward and relatively easy to complete. However, even those who found it easy often commented that they felt they had the skills to fill it in (perhaps from past employment) but felt others might struggle due to the length and complexity of the form and nature of the process. For example, one respondent, applying early in the roll-out of Cohort 2, found the process complex although personally they did not have a problem with it:

I’m a former headteacher, I know about forms. If they were doing a good job, it should be a transparent process… it should clearly state the address to return the form to, the deadline – none of those things were available on the form. I got a loose-leaf form, not stapled – Cohort 2, Male, 55 to 64, Large claim.

Those that reported the application being difficult often said they felt it was a very complex form to complete, particularly mentioning the issue of legal jargon. They felt that the form was quite stressful to complete, and this produced feelings of anxiety because of the extent of information required. This was further compounded by the feeling that there was no service available to check that they were filling in the form correctly. Although Citizens’ Advice do offer such a service, they have limited capacity, and this is not proactively promoted by DWP.

As I said before… we are educated and able to deal with forms and information like that. But you know, we just found it quite tricky and I’m just thinking we filled out the form that we thought we had to. But there’s no one that we could check it with – Cohort 2, Female, 35 to 44, Average claim.

Reasons that could be classed as difficulties finding information were stated by 4 in ten respondents (39%). This was higher among respondents who had made their first claim since April 2023 (52%)^{[footnote 22]}. Sometimes, interviewees felt unsure if they had filled in the form correctly, and the lack of validation (as might occur automatically with an online form, or might occur at a helpdesk with an in-person process) worried them:

You don’t have anyone holding your hand and walking you through it, it’s not like Universal Credit where the person behind the desks helps you through it – Cohort 1, Female, 55 to 64, Large claim.

Figure 3.3 Reasons why recipients found SMI application process difficult

C2. What did you find difficult about the SMI application process? Base: All those who found SMI application process difficult (458)

After completing the forms, there was a process of working out where to send them; this was usually unproblematic although it could occasionally take a while to determine the correct address or office at the lender to send the form to. Many recalled that they did not have much communication with their lender about their application or the SMI loan.

Once the forms had been sent by post to the lender, there was a period of waiting. This was often referred to as a nervous period by respondents, given that during this time they were unable to pay the mortgage and would be receiving demands for payment. Sometimes, interviewees felt they were filling in the forms and sending them off without knowing if they had included the right information, which led to an extended period of uncertainty around whether they would be accepted or not. For some, this period was not too long and ended with a successful outcome:

I thought it was quick actually; I didn’t think that it was that long [to wait] – Cohort 2, Female, 35 to 44, Average claim.

However, apart from uncertainty about the forms, there was the uncertainty whether they had arrived first with the correct person at their lender, and then at DWP. Therefore, these wait times sometimes caused anxiety. These fears were not entirely unfounded; many interviewees mentioned forms becoming lost in the post, or being refused on arrival due to errors made by themselves or in one case by the lender.

When forms were lost or refused, this meant that after a period of waiting and checking if it had been received, they then had to do the whole application again, so that they had to wait for much longer to receive their first payment. Lost forms could happen between themselves and the lender, between departments within the lender, between lender and DWP, or between DWP departments.

The forms went missing. We had to do the forms again, then they’d gone to different departments, and they had problems tracking them down….it took a while – Cohort 1, Male, 35 to 44, Average claim.

One recipient said they found the application process particularly stressful, as they said DWP lost their application several times, which resulted in a two-year delay to receiving the payment, and then a very large back-dated payment, with severe implications for their financial situation.

Very stressful… the mortgage was very high. We had to keep pushing to get answers… The forms went missing. We had to do the forms again, then they’d gone to different departments, and they had problems tracking them down….it took a while – Cohort 1, Male, 35 to 44, Average.

Recipients in Cohort 2 often commented that they felt the application only being available via post was not very practical, and believed it meant they had to wait longer to receive their first payment.

The whole process should have been easier rather than relying on the post, and [they] could have made the process a lot quicker if [it was] online – Cohort 2, Male, 45 to 54, Average claim.

One Cohort 2 recipient mentioned their application had been rejected initially, because DWP believed their mortgage number was invalid, because it looked like a bank account number. On consultation with the lender, and resubmission of an unchanged form with a post-it attached confirming the lender view that the account number was correct, it was accepted. Other recipients (as well as lenders, see the Lender Annex) mentioned having forms rejected initially, but they were often uncertain of why.

Awaiting payment

Putting this into context in terms of the overall impact of delays on receiving payment, the quantitative survey indicated that half of recipients (48%) agreed that the time it took between their SMI application and receiving first payment was acceptable, with one-quarter (25%) disagreeing.

Sub-groups of recipients that were more likely^{[footnote 23]} to find the time taken between their SMI application and their first payment as unacceptable included:

• Those who earned less than £5,000 per year (44%)
• Cohort 2 recipients (43%)
• UC recipients (36%)

There was a mixed response from both Cohort 1 and Cohort 2 around their feelings on how long it took to get the first payment. Although many did not have any problems, a substantial number recalled that they felt the payment could have come through a lot quicker, and having to wait the length they did led to anxieties and made their financial situation worse. Along with not knowing if their application had been accepted or not, they felt there could have been better communication around when they would receive the payment, to reduce stress.

In all it took 7 months to receive payment. Had to borrow money from a friend of the family to avoid losing the house and was on anti-depressants; felt really demotivated, vulnerable, scared – Cohort 2, Male, 45 to 54, Average claim.

While waiting for the payment, those that said it took too long, said they had to rely on others for financial support such as family and friends, so that they didn’t go into arrears with their mortgage payment.

3.2 Receiving SMI

3.21 Receiving funds

SMI payments are usually sent directly to the lender, and typically issued on the same day as their primary benefit payments, which for legacy benefits is every 28 days. This caused some difficulties for some recipients interviewed, since this schedule does not match mortgage payments, which are levied every calendar month and may require payment at a specific time, requiring some recipients to periodically change their monthly payment date with their lender so that they recognise the SMI payment, rather than requesting the full amount from them. For SMI recipients on UC, payments are monthly, and so the issue of synchronising mortgage and benefit payments can occur only once, at the start of the loan.

Some felt that having money go straight to their lender was beneficial to them, as they felt the money could end up being spent on other bills if it went straight to them.

They pay it straight to the mortgage company, which is even better, because that way you know, if it was to come to me and there was a bill, it may sort of go on that – Cohort 2, male, 55 to 64, large claim.

Across Cohorts 1 and 2, there was a mix of experience about how smoothly SMI payments were made. For the most part, this happened automatically, and payments were correct. But there were instances across both cohorts where recipients described issues arising with payments that needed to be resolved. For example, changing interest rates meant that underpayments needed to be resolved, or payments needing to be manually adjusted by lenders.

That bit of it was a little bit of a nightmare – I literally had to speak to the lender several times – Cohort 1, Male, 45 to 54, Average claim.

For some, the lack of communication around the paper application process proved problematic as it meant that payments were sometimes being made by DWP, but lenders were not able to allocate them to recipients due to a lack of awareness of whose account they should be allocated to. This caused delays, sometimes resulting in lenders continuing to demand the full payment of the mortgage from the SMI recipient.

This impacted recipients’ credit scores, and resulted in administrative work to rectify. For example, one recipient had to speak to their lender after each SMI payment was made, until they were able to establish what the correct direct debit should be. This took 3 months. In one case a respondent found it easier to change the date in the month at which their mortgage was paid to suit the date DWP had chosen to make the loan payment.

Those that did have communication with their lender, typically because of complications with the SMI payment. Although few reported obstructive or hostile lenders, it was quite frequent that lenders did not know what to do with payment and were initially confused by it.

Respondents said this normally required a lot of back and forth with their lender to sort the issue. Although their experience was rare, one respondent had 2 mortgages, and at the time of interview was still unable to get the second mortgage lender to accept their SMI as payment:

[The lender] wouldn’t help me, they just refused to accept it, and I wish they had been more understanding, but unfortunately, I had a person that wasn’t very understanding – Cohort 2, Female, 35 to 44, Average claim.

3.22 Changes during the claim

Communication around ongoing claims

Many recipients interviewed said they didn’t receive any ongoing DWP contact regarding SMI. Some of these recipients felt that statements from DWP about their SMI payments would have been useful. There were many instances of recipients saying they believed that there would have been communications from DWP, but they had not received anything directly.

Some described how they would have liked to know how much their SMI payment would be prior to receiving it, especially where there were delays to their payments and they were incurring further arrears. Some mentioned how a statement would help them know where they are with SMI.

I don’t know how it’s working, because I haven’t, I’m not sure how to access any sort of statement to look at how the interest is being paid – Cohort 2, Female, 35 to 44, Average claim.

There were, however, instances of letters from DWP being sent detailing SMI payments made, and one recipient recalled a letter mentioning changes of interest rate. When received, recipients generally felt this communication had been clear.

Across both Cohorts 1 and 2, some recipients mentioned communications around payments, where mistakes had been made. This was usually from DWP to the lender, but could also be from DWP to the recipient. For example, one recipient described how there had initially been some misunderstanding about the changing interest payment (meaning it was underpaid at the start). This recipient received a letter from DWP explaining how payments would work.

Interest rate changes

There was little awareness of how the rate of SMI DWP pay is calculated and when it changes. Where interviewees were aware, they mentioned receiving a letter on an annual basis detailing changes to interest rates.

The variable nature of SMI payments relative to their mortgage could be a source of anxiety for recipients, and something they felt was out of their control.

In Cohort 2, numerous recipients talked about how the broader rise in interest rates had affected them. For most, it had had a detrimental effect as their payments increased, sometimes dramatically:

Definitely… if you go back to before 2 or 3 years ago, I was only paying £480 pounds a month…then it went up to £1,380 pounds a month… it was a steep rise – Cohort 2, Male, 55 to 64, Large claim.

However, some recipients were not immediately affected as they had previously secured longer term fixed rates of up to 7 years, insulating them from the immediate effect of interest rate rises. There was a group of Cohort 1 recipients who felt that SMI interest rates had not kept up with their mortgage interest rate as it increased:

My mortgage payments went up from about £400 to nearly £1,000 per month, but the SMI hardly changed – Cohort 1, Female, 45-54, Large claim.

3.3 Implications for policy

RQ4. What are recipients’ experiences of navigating the SMI system?

It is important not to overstate issues with the process; recipients’ experiences were often positive, and they found the help from SMI invaluable. Many found the process straightforward and, in those cases, tended not to comment much on it.

However, a substantial number experienced significant difficulties in:

• Obtaining the form in a reasonable timeframe, especially through the UC journal
• Completing the form with enough confidence to be assured of a positive outcome
• Receiving timely approval for the form, most often due to forms being lost in the post

Recipients most often suggested the process could be moved online to reduce these problems; however, issues in the existing process could also be addressed separately.

RQ11. How, and to what extent, does the scheme prevent arrears and possessions?

The only element of this research question relevant to this chapter is that payments are made directly to lenders. While this seems an effective approach, the mechanism could be improved. Recipient interviews suggested lenders often had difficulty consistently identifying the payment as for their mortgage, with many needing extended or repeated discussions with lenders about the logistics of mortgage payment with SMI. However, this was a matter of time and discussion; there were no cases found where SMI payment to lenders was unsuccessful.

4. Impact of SMI

This chapter explores the impact of SMI on recipients. Most recipients are happy with SMI and feel it has had a positive impact on their lives; many said they would lose their home without it. There are groups, however, who feel SMI is having a negative effect; they may be benefiting less from SMI, principally if they are not receiving sufficient funds (due to interest rate increases, or capital limits) to avoid either severe hardship or losing their home, as well as a smaller group who have, or have had, misunderstandings of SMI leading to either ongoing worries (some unfounded) or negative outcomes.

4.1 Understanding SMI

4.11 Recipient understanding

How SMI repayment works

Regarding how the loan is paid back, across Cohorts 1 and 2, there was awareness that the loan would have to be paid back. Not everyone understood clearly how the loan would be claimed back from their estate after their death. Some were worried that their SMI loan might exceed the remaining equity in their property, and that they would end up both homeless and in debt to DWP or their lender. Both of these situations should not in fact arise with SMI.

A handful of interviewees had other misperceptions regarding SMI, believing that their children would inherit the debt, while some seemed unaware that a debt had been secured on their property. A lack of understanding of how SMI worked was particularly pronounced among people in Cohort 1 who had been transferred directly from SMI as a benefit.

April 2023 changes

Generally, respondents were not aware of the April 2023 changes to the eligibility rules for SMI, and a small number said the changes would have an impact on their behaviour. However, a change that did seem to be appreciated by recipients was the changes in wait times.

Three quarters (75%) of survey respondents were not aware that UC recipients were now allowed to work without losing their SMI eligibility, with 20% saying that they were aware. Awareness was higher^{[footnote 24]} amongst Cohort 2 recipients (37%) and UC recipients (28%).

Four in 5 SMI recipients on UC (80%) were not aware of the rule changes regarding reducing the qualifying period length from 9 months to 3 months, with 17% being aware. The proportion of respondents aware was higher amongst Cohort 2 than Cohort 1 (24% vs. 14%).

Out of those that applied from April 2023, around half (47%) said that if they had to wait for 9 months instead of 3 months for SMI they would have fallen into (further) arrears or had their home possessed (Figure 4.1), suggesting a positive impact, which might be larger if the application process were faster. In general, only one in ten (10%) said there had been no impact.

Figure 4.1 Recipients’ views of the likely impact if they had waited 9 months for SMI eligibility rather than 3 months

D7. What impact, if any, do you think waiting 9 months for SMI instead of 3 months would have had on your financial situation? Base: UC claimants that applied for SMI from April 2023 (179)

Similar themes of respondents being grateful, but not necessarily aware of this change emerged from the qualitative interviews too.

So, we weren’t aware, because we’re applying post that date. But we’re really grateful that that change had been made – Cohort 2, Female, 35 to 44, Average claim.

Some of those that were not aware of the change said they were pleased about the change, as it meant that potentially they could earn more money and be able to afford to pay their bills. One mentioned that this would not affect their decision to work, as they would always rather be able to work, and would have gone into work and foregone SMI anyway.

Some were also grateful for the change as their eligibility for SMI meant they would not have to rely on their parents for financial support, or fall into further mortgage arrears. Some even felt that it had helped them avoid possession of their home.

Potentially, we could have risked losing the house if we were behind that much on the mortgage payments – Cohort 2, Female, 35 to 44, Average claim.

There were, however, a group who said the change in rules would not have made a difference to them. This group had other support in place already that they felt helped them to an adequate level, such as UC.

4.2 Direct effects

4.21 Effect of SMI on financial situation

There was clear evidence from the recipient interviews and survey that SMI had helped recipients to avert further arrears and possession. Two-thirds of respondents (64%) said that if they lost SMI eligibility, they would be very likely to fall into mortgage arrears or further mortgage arrears.

Obviously, without it [SMI] at the very beginning, we would have definitely gone into massive arrears – Cohort 2, Female, 35 to 44, Average claim.

The government should be very pleased with themselves, that they were able to do this for people. The idea of losing one’s home, that one has worked very hard to save up and pay the deposit for just because of a change in your circumstances or a life-event… All I can say is thank you – Cohort 1, Female, 55 to 64, Large claim.

Some groups of SMI recipients were more likely to say they would be very likely to fall into arrears without SMI than others^{[footnote 25]}:

• Recipients with a disability that always limits their activities (69%)
• Recipients with a large SMI payment (more than £300 per month) (74%)
• Recipients within Cohort 1 receiving Universal Credit (73%)

Figure 4.2 Perceived likelihood of the following situations occurring if a recipient lost access to SMI

E4 1-4. If you lost your SMI eligibility, how likely or unlikely do you feel it is that the following financial situations might happen to you… Base: All those currently claiming SMI (1,171).

Seven in ten (71%) of respondents said without SMI, they would be likely or very likely to be forced to sell their home, and over half (58%) of respondents said that it would be likely or very likely that their home would have been possessed by their lender without SMI.

I don’t think that we would have managed to hold on to the house without it – Cohort 2, Female, 45 to 54, Average claim.

In the recipient survey, Cohort 1 recipients were more likely to say, that without SMI, they would be very likely to have to sell their home than Cohort 2 recipients (55% vs 43%), and that it would be very likely that their home would be repossessed (43% vs 32%).

However, there were some recipients interviewed who felt they would have managed to avoid further mortgage arrears without SMI. They did not reference arrears or possession directly, but almost always felt their standard of living would have been reduced without SMI. Paying the mortgage was seen as the most important payment for some, and they often felt they would have done this without SMI, but there would have been a financial impact elsewhere.

Frequently, however, they said this would have meant severe sacrifices to living standards, such as skipping meals or going without heating their homes, which likely would have affected their basic well-being.

Findings from the survey showed that 7 in ten (71%) respondents felt it was likely or very likely that without SMI they wouldn’t be able to pay bills, two-thirds (64%) said they wouldn’t be able to pay for food, and a similar amount (61%) said they would fall into other forms of debt. Often respondents felt they would rather make such sacrifices than lose their long-standing home.

It is probably helping to make sure that we pay some of the other bills, because the mortgage would always have been priority – Cohort 2, Female, 35 to 44, Average claim.

Figure 4.3 Perceived likelihood of the following situations occurring if a recipient lost access to SMI

E4 1-4. If you lost your SMI eligibility, how likely or unlikely do you feel it is that the following financial situations might happen to you… Base: All those currently claiming SMI (1,171)

Often respondents felt they would rather make such sacrifices than lose their long-standing home.

It is probably helping to make sure that we pay some of the other bills, because the mortgage would always have been priority – Cohort 2, Female, 35 to 44, Average claim.

4.22 Effect of SMI on standard of living

Regarding whether recipients felt that SMI support was sufficient to maintain a reasonable standard of living, in Cohort 1, there were mixed opinions. As mentioned in the previous chapter, some mentioned that SMI payments had not kept up with the increase in their mortgage interest rates. There were also differences between life-stage. For example, those without dependents were typically more comfortable with the level of support.

From the survey, couples with children were less likely to take specific money-saving measures while on SMI, suggesting their overall level of support (including other benefits) better fits their needs. For example, 22% of couples without children have had to borrow money while on SMI, compared to 37% of single households with children. They are also less likely to need to postpone or not pay other bills (31%), compared to 39% for claimants as a whole, although this was still quite widespread^{[footnote 26]}.

I feel that it would be extremely hard for them [people with families] but me being a single guy who always used to keep their finances very tight anyway so me, I can manage on it – Cohort 2, Male, 35 to 44, Average claim.

However, some recipients felt that they wanted to keep their SMI payments low, as they were aware they would have to pay it back, and they were accumulating debt.

In Cohort 2, thoughts on the level of support SMI provides were more positive in qualitative interviews. Many recipients described the support as helpful. There were some complaints about rates not matching the increase in their mortgage interest rates, but these were usually expressed less strongly.

Rates are a little low. [It] could be more in line with interest rates as [we will] have to pay it back anyway – Cohort 2, Female, 55 to 64, Small claim.

With regards to the impact of SMI on standard of living, although some recipients’ situations were more substantially improved by SMI than others, there was general consensus that recipients would have been struggling more than they were now without SMI in place, particularly for everyday essentials like food and fuel.

It eased the burden… I could buy that extra thing in my shopping, or I could have a bath instead of a shower. It’s the little things in life – Cohort 2, Female, 35 to 44, Large claim.

Although SMI was generally greatly appreciated by recipients, there were instances of recipients interviewed who had come to resent the SMI loan, because even in addition to their other income, it was still only just enough for them to survive, and yet they were building up debt.

It saves people from actually going under… it is saving me from being in the mire now, but I will be in the mire later on – Cohort 1, Female, 45 to 54, Large claim.

It was clear from interviews and the survey that SMI was not always sufficient to allow arrears accrued to be paid off, as the SMI payments sometimes only just allowed recipients to break even or cover the interest payments on their mortgages:

What I owe has gone up because the SMI keeps adding interest. I had to change the mortgage to a temporary six-month interest only arrangement so I could reduce my credit card bills – Cohort 1, Male, 55 to 64, Average claim.

Survey respondents were asked about the actions they took to help their financial situation, prior to SMI, since starting their SMI claim, and actions they would have taken if SMI was not available to them. Responses to these 3 questions showed that SMI was having a significant impact on their financial situation and standard of wellbeing, as can be seen in Figure 4.4, but hardship did remain. Generally, the position was slightly improved for SMI recipients (the orange bars in Figure 4.4) relative to the position prior to claiming SMI (the blue bars), but much better than they assessed their position would have been without SMI (the black bars).

Many households had reduced spending on things other than bills prior to receiving SMI (74%), most of these reducing essentials such as food (83%), clothing and shoes (75%) or energy and water consumption (65%).

Since starting to claim claiming SMI, the proportion reducing spending fell modestly to 72%; a reduction of 2 percentage points. This is still a substantial level of hardship; within this group many were still reducing essentials such as food (82%), clothing and shoes (75%) and energy and water consumption (65%).

However, many more (83%) would expect to have to make cutbacks on these items should they lose access to SMI, an increase of 15 percentage points. Disabled or sick recipients (86%) were more likely to say they would reduce spending on other things^{[footnote 27]}.

A similar pattern emerged with other key actions, as seen in Table 4.1. Across all measures, households found that their difficulties reduced slightly with the introduction of SMI, but said that they would be in a substantially worse situation without it.

If asked instead what they would do if they stopped receiving SMI, the percentage of recipients who said they would postpone or not pay bills rose sharply; from 39% to 59%. Those receiving UC were more likely^{[footnote 28]} to say they would need to do this without SMI (65%), as were ESA (64%) and PIP (62%) recipients and disabled recipients as a whole (61%). Retirees were less likely to say they would do this both while claiming SMI (21%) and if they stopped receiving it (38%).

A similar trend was seen for seeking help from a lender; while 36% have done this while claiming SMI, 61% said they would do so if their SMI were removed. This was higher amongst ESA (68%) and UC (65%) recipients^{[footnote 28]}, but lower amongst PC recipients (45%).

Furthermore, while 31% have borrowed money while on SMI, 52% felt they would do so if SMI were removed. This was again higher amongst UC recipients (59%) and lower amongst PC recipients (29%).

Throughout, retirees show a lesser level of concern about the consequences of losing SMI. However, it is important to note that they are much less likely to have large SMI payments (9% receiving more than £300 per month) than those in employment (44%), disabled (22%) or otherwise not employed (29%), and therefore the consequences of losing that payment will be lesser. Typically, they have been in the property a long time (89% for more than 15 years), and their situation now may be much better than at the outset of their use of SMI. 

Table 4.1 Selection of actions taken prior to and while receiving SMI, and would be taken if no longer had access to SMI

Action taken	Prior to receiving SMI	While receiving SMI	If no longer had access to SMI
Postponed or not paid other bills	43%	39%	59%
Sought help from lender	43%	36%	61%
Borrowing money	35%	31%	52%

Figure 4.4 Actions taken prior to receiving SMI, since first SMI payment, and actions recipients would have taken without access to SMI

B2. Prior to your first SMI payment being made, did you try any of the following to try to make your mortgage payments? Base: All respondents (1,408). Responses under 10% not shown in chart (3%: Considered selling my home / other belongings. 1%: Approached a charity. 1%: Used benefits / used to be covered by benefits. <1%: Cashed in pension.)

E5. Since your SMI payments first started/While you were still claiming SMI, did you use or try to use any of the following to try to make your mortgage payments? Base: All respondents (1,408). Responses under 10% not shown in chart (2%: Sell assets / put house on the market. 1%: Seek help from a charity. 1%: Taking in a lodger.)

E5E6MERGE. Since your SMI payments first started/While you were still claiming SMI, did you use or try to use any of the following to try to make your mortgage payments? Base: All respondents (1,408). Responses under 10% not shown in chart (9%: Sell home. 1%: Sell other belongings. 2%: Take in a lodger. 1%: Seek assistance from charity. 1%: Rent out rooms in home. <1%: Apply for additional benefits.)

Some severe ongoing impacts on standard of living were mentioned in the qualitative interviews, which evidently would have an impact on well-being. One mentioned that without SMI they would have had to make the choice between paying the mortgage and keeping the heating on. Another, however, said that they were hardly eating already, as they could not afford food even with SMI:

I think myself and my children would have gone without things like food, meals I mean. I only eat one meal a day anyway, but that would have been reduced… [SMI] did ease the burden a bit… It would have made everyday living a lot harder if I hadn’t have applied for it – Cohort 2, Female, 35-44, Large claim.

Another respondent said they had not bought any new clothes for several years, and that it was only with the recent reduction in interest rate by their lender that they had felt they would make it through financially without losing their home. This was an example of the impact of bank interest rates greatly exceeding the independently set interest rate covered by SMI payments.

4.3 Indirect effects and behaviour

4.31 Effect of SMI on well-being

Including financial planning, stress and health impacts

When looking at how SMI has impacted recipient wellbeing, half (52%) said SMI has had a somewhat or very positive impact on their long-term financial planning (Figure 4.5). PC (58%) and UC (55%) recipients, alongside Cohort 2 (63%) recipients were more likely to say this, however Cohort 1 recipients (50%) were less likely^{[footnote 29]} to say this.

So that’s one worry you haven’t sort of got to worry about [with SMI], you know because that it’s going to appease your mortgage company. It doesn’t cover it all, but it covers the majority of it, which you know could be the difference between you losing your house and keeping it. It gives me more breathing space and [time] to think about what [I] can do in the future – Cohort 2, Male, 55-64, Large claim.

In one case, an interviewee mentioned that they had just paid off their mortgage, enabling a substantial improvement in well-being (in terms of stress and basic financial security), which they attributed to help from the SMI benefit and later loan.

It’s been very helpful. It took stress out of me, my wife and my 2 kids – Cohort 1, Male, 55 to 64, Average claim.

A lower number (43%) said SMI had a somewhat or very positive impact on their mental health and wellbeing. Cohort 2 (63%), and UC (50%) recipients were more likely to say this, whereas Cohort 1 (40%) and ESA (37%) recipients were less likely to say so^{[footnote 30]}.

Obviously, your situation, your home life, your stress levels, can have a knock-on effect on it [the illness]. Having the SMI has obviously relieved stress, which has had an impact on that [illness] – Cohort 2, Female, 35 to 44, Average claim.

A smaller proportion (25%) said SMI had a somewhat or very positive effect on their ability to adapt their home, with 17% stating it had a somewhat or very negative effect. About a quarter (23%) of respondents said they didn’t know whether SMI had an effect in this way.

Figure 4.5 Effects of SMI on long term financial planning, ability to adapt home to needs, and mental health and wellbeing

E7-1. How would you describe the impact that SMI has had on… Your long-term financial planning (e.g. for retirement). Base: All respondents (1,408). E7-6. How would you describe the impact that SMI has had on… Your ability to adapt your home to the needs of a disability, if you have one. Base: All respondents (1,408). E7-1. How would you describe the impact that SMI has had on… Your mental health and wellbeing (e.g. for retirement). Base: All respondents (1,408).

A significant proportion of recipients did say that SMI had a negative impact on their well-being (34%). This was lower for those who expected a positive exit from SMI (Figure 4.6), such as those who believed they would be claiming SMI until they could work or no longer needed to receive benefits (24%), or those who believed they would need to claim SMI until they could pay off their mortgage (28%). Alongside this, Pension Credit recipients were less likely to say SMI had a negative impact on their wellbeing (17%).

The groups most likely to see a negative impact on well-being were those who were not pensioners but still expected to claim SMI for the rest of their life (54%) or until they sold the home (38%). This suggests that seeing a sustainable route out of claiming SMI is important for recipients’ perception that the loan is helping them, although as explored below, is not the only factor.

Figure 4.6 Effect of SMI on mental health and wellbeing crossed with how long recipients believe they will be claiming SMI for

E7_7. How would you describe the impact that SMI has had on your mental health and wellbeing, crossed with E1. Which of these statements best describes how long you think you will need to claim SMI for? Base: On Pension Credit (243), Until working, or not on benefit (189), Until mortgage paid off (222), For the rest of your life (90), Until you sell the home (298), Don’t know (129).

The qualitative interviews provided further insight into these views. Some of those interviewed felt that, even if SMI was providing a route to keeping their home, the process of applying for SMI and receiving delayed payments had been so unclear and stressful that it had negatively impacted their mental wellbeing.

I almost wished I’d never bothered if it wasn’t for the fact I couldn’t manage without it. It has been so utterly stressful – Cohort 2, Female, 45 to 54, Large claim.

In many of these cases, recipients were still glad to have the financial help, but called for simpler application processes and better communication from DWP towards them and their lender.

Negative impacts on well-being also sometimes stemmed from the nature of SMI as a loan, and consequent concerns around paying it back. Some felt the nature of SMI as a loan was reasonable, but many felt this was unfair. Comparisons were made with those living in rented accommodation. This was more pronounced in Cohort 1, where respondents had experienced the change from a benefit to a loan.

It’s quite frustrating that if you’re in a rented property, you get your rent paid, but if you own a property, you have to pay back a loan – Cohort 1, Male, 45 to 54, Average claim.

There were also instances in Cohort 1 of recipients who felt ‘trapped’ by SMI, since the loan had placed a legal charge on their property. They had found that this meant they could not subsequently use equity release to remain in their home without completely paying off the SMI, which often they could not afford to do.

In a few interviews, Cohort 1 respondents explained they were on interest-only mortgages with SMI and were aware that at the end of their mortgage term they would not be able to extend or renew the mortgage with their lender, and would therefore lose the property. These situations had sometimes arisen due to a lack of understanding of the risks and likely outcomes when they agreed to SMI, or from a mistaken belief that DWP might be expecting them to sign up and that there might be unspecified consequences from not doing so.

Neither of the actions described above are intended behaviours of lenders toward SMI recipients. While SMI is a legal charge on a property, it is not a first charge and SMI debt should not prevent remortgaging or extension of the term of an existing mortgage. However, multiple SMI recipients interviewed said that in practice lenders they contacted were unwilling to consider them, and they felt they were very likely to lose their home as a result.

Some recipients had wanted SMI to be a temporary solution, but felt it would now have to be long-term as their situation was not going to change. This applied particularly where respondents were on an interest-only mortgage and could no longer see a realistic way of paying back the mortgage in the longer term, causing stress and uncertainty about the outcome.

It’s the thought of it being a loan, with interest, trying to pay it back with the monthly payments being so big… It’s easy to carry on and say ‘Oh, just one more month’, because it does help, but it’s one more month where I owe another £500, plus the interest… if I can’t pay it back for 10 years, I’m paying interest on that £15,000 - £20,000 that I’ve now borrowed for that amount of time. I don’t think it’s an achievable repayment – Cohort 2, Female, 35 to 44, Large claim.

There were instances of recipients who, despite being glad to have SMI in place, were still struggling financially. One described how they no longer receive child benefit for their eldest daughter who has left home, and the economic situation had impacted them negatively. There was also a sense of uncertainty about the future for some, how long their benefits would be paid for, and if their mortgage would go up again. There were also many examples of recipients being glad to be in receipt of SMI, but still feeling like this was just enough to keep them afloat.

I’m constantly stressed [about the financial situation]… I can’t afford to pay everything [in debt to water company] and worry about the other bills, like car insurance and home maintenance that will keep coming up – Cohort 2, Female, 55 to 64, Large Claim.

In both Cohort 1 and to a lesser extent in Cohort 2 recipient interviews, some interviewees stated that the SMI loan felt to an extent unfair, in that they were being penalised for owning a home. They said if they were in rented accommodation and were struggling financially, then they would have received housing-related benefits:

I actually think it’s … unfair that I’m kind of penalised for having a mortgage, because if I was in the same situation, and… I was renting, my rent would be paid and it wouldn’t be something that I would have to pay back, whereas because I have a mortgage… it’s classed as a loan… – Cohort 2, Female, 35 to 44, Large claim.

However, there were instances in Cohort 2 of a difference of opinion here, with some feeling this was fairer, at least where they expected to be able to pay off their mortgage in the long term:

It’s not a handout [because] I have to pay it back – but I totally agree that you [should] have to pay it back, because it’s the capital… It’s my house, and when I die, I’ll be able to leave it to somebody else – Cohort 2, Female, 55 to 64, Small claim.

There is some evidence that concern about SMI’s nature as a loan is partly fuelled by uncertainty about repayment. The policy is that repayment of the SMI loan is limited to any available equity when the property is sold, transferred or when the claimant dies. This was not understood by some recipients who expressed worries about outstanding debt should they lose their home, or debt to DWP being inherited by their children. For some, clarifying this could substantially improve their experience.

4.32 Effect of SMI on seeking employment

Overall, the impact of SMI eligibility changes implemented in April 2023 on propensity to seek work seems modest, summarised in Figure 4.7. The lower half of the chart shows the impact that has already occurred, while the top half shows potential impact, should changes be made or awareness raised.

36% of those SMI recipients aware of the changes said that they had already been encouraged them to seek work. However, as represented by the size of the boxes on the chart, this group is quite small, since not many are currently aware. In addition, 57% of those who were in employment on SMI at the time of the survey said that the changes had encouraged them to apply for SMI.

There would appear to be potential for further employment; 13% of eligible SMI recipients on UC said it would encourage them to find work. This proportion may seem low; however, 3 quarters (77%) said they are unable to work regardless of rule changes due to disability, age or illness. This suggests that the policy change could be quite effective with the group realistically able to work, if awareness were increased. Findings from the qualitative interviews also supported this as many of these respondents considered themselves disabled and said that they could not work due to their disability in any case.

A further group of SMI recipients on legacy payments said that the changes might encourage them to move into work if the change were also applied to their legacy benefits. This group is quite large, suggesting that as this group are moved onto UC, a substantial number may move into work despite the high proportion who are disabled or retired.

In addition, wider awareness-raising among UC claimants could bring a further group of unknown size^{[footnote 31]} (represented by the question mark in Figure 4.7) to start claiming SMI, having previously been ineligible or uninterested in SMI due to the earning rule.

Figure 4.7 Changes in behaviour following SMI eligibility changes

D5. Does now knowing that you would not lose your SMI eligibility encourage you to find work? Base: (463). D8. If this were the case for you, do you think you’d seek employment or become self-employed? Base: (735). D3. Did extending SMI eligibility to in-work UC claimants encourage you to apply for SMI? Base: (63). D4. Would you say that knowing you will not lose your SMI loan if you are in work, has helped you take up work or keep working? Base: (59).

In Cohort 1 interviews, when asked if they’d take advantage of the eligibility rule change (meaning they could still receive SMI whilst earning, providing still eligible to claim UC), most recipients were not aware of this, or felt that it did not apply to them as they were not working anyway. This likely reflects the older group here who were not working. However, one said it would benefit them as they could start being paid from their business again.

Would be something that if we do get there, yes it would be. Haven’t been able to be paid from the business for a long time – Cohort 1, Female, 45 to 54, Average claim.

In Cohort 2 interviews, there was a roughly even split between recipients who were aware, or not, of the removal of the zero earnings rule for UC.

A group emerged who had worked at the same time as claiming UC and SMI. Even within this group, there was mixed awareness about the rule change. In some instances, for those who were aware, they had checked their eligibility as they wanted to ensure they could carry on working. However, in most instances working claimants were unaware that SMI had ever restricted working.

When I applied, I was working at the time. So, I had to make sure that I was eligible for it – Cohort 2, Female, 35 to 44, Large claim.

Many did express gratitude during interviews, on learning in their interview that this rule change was what had allowed them to work and claim SMI, and felt the change was very positive.

No, I wasn’t [aware it was different before]. But… we’re really grateful, because I do work and can claim SMI – Cohort 2, Female, 35 to 44, Average claim.

For those existing claimants who were not working, the fact that they could have worked was most often irrelevant to them, because they were not able to work in any case due to illness, disability or age.

4.33 Claiming SMI temporarily, or for the long-term

From the recipient survey, 9 in ten (93%) recipients did not know when they bought their house that they would need SMI payments in order to help pay their mortgage, with just 5% stating that this had been planned. This was more common in Cohort 1 (6%) and for older claims (8% among those starting before April 2023) and rare in Cohort 2 (1%)^{[footnote 32]}.

When presented with several statements on how long they think they would need to claim SMI for (Figure 4.8), a third of recipients (33%) said they expected to claim until they sell their home, and a further 14% expected to claim for the rest of their life (rising to 31% among PC recipients^{[footnote 32]} ). Together, this suggests around half (48%) of SMI recipients have no expectation of being able to pay off their mortgage, and therefore to own their home outright. Importantly, the group expecting to claim until they sell the home (33% overall) is particularly large among those receiving large payments (44% of those receiving more than £300 per month^{[footnote 32]}) and those with more than £150,000 outstanding on their mortgage (48%)^{[footnote 32]}, suggesting that caps on the amount paid (via capital limits) mean that it is particularly difficult to sustain mortgages using SMI in these situations.

However, just over a fifth (22%) explicitly said they felt they would need to claim SMI until their mortgage is paid off, and a further group (16%) thought that they would enter work or otherwise be able to leave benefits. In total, this group expecting a positive exit to SMI is substantially smaller (39%) than that expecting never to pay off their mortgage (48%).

Groups more likely to expect a positive exit to SMI included^{[footnote 32]}:

• Those already employed – 40% expected to leave benefits
• Those in Cohort 2 – 39% expected to enter (better paying) work to leave benefits
• Younger recipients – 36% of those under 45 expected to enter better paying work or leave benefits
• Those receiving UC – 29% expected to leave benefits. However, only 15%  expected to be able to pay off the mortgage while still on SMI
• Those without a disability – 27% expected to leave benefits
• Among those on PIP, ESA and IS, more (27%, 32% and 38% respectively) expected to be able to pay off the mortgage while on SMI

For those on PC, only 19% expected an outcome which would result in their owning the home outright^{[footnote 32]}. However, for this group (almost all longer term claimants in Cohort 1), their aim by claiming SMI may have been in order to retain the home in retirement, and therefore they may not see this as a negative outcome.

For those receiving large payments (more than £300 per month) it was rare to expect to do be able to pay off their mortgage (12%)^{[footnote 32]}, perhaps reflecting that most of those with claims close to the capital limit or large balances outstanding will be in this group. Those receiving small payments (£100 or less per month) are typically coming to the end of paying off their mortgage, and often expected to pay off their mortgage while still on SMI (40%)^{[footnote 32]}.

Figure 4.8 Length of time recipients think they will claim SMI for

E1. Which of these statements best describes how long think you will need to claim SMI for? Base: All those currently claiming SMI (1,171), Cohort 1 (952), Cohort 2 (219).

When asked why they see SMI as a long term or short-term solution, findings from the qualitative interviews showed that Cohort 1 recipients were more likely to see SMI as a long-term solution, although this was not necessarily out of choice:

If I’m thinking I’m going to live here forever, then I’m not worried – then I guess I won’t need to worry and can just let it carry on helping me – Cohort 1, Male, 35 to 44, Average claim.

For many in this group, they did not anticipate being able to work again, so saw themselves relying on SMI for the foreseeable future. Many in Cohort 1 were retired or permanently disabled, and saw little or no prospect of change. Some did consider that SMI might allow them to pay off their mortgage eventually. For a handful, SMI was not a long-term solution, but solely because their lender might terminate their mortgage, or they might be forced to sell and move into renting.

There were a mix of responses amongst Cohort 2 recipients. Some said they saw SMI as a temporary solution while they got back on their feet after a period of financial difficulty.

It was really just a bit of a help, while things started to ease like slow down with the rise of costs and things like that as well… it wasn’t meant to be a long-term thing at all – Cohort 2, Female, 35 to 44, Large claim.

Others agreed with Cohort 1 recipients that it would be long-term as they either didn’t see their financial situation changing due to not being able to work, or in some cases, older respondents felt they would pass away before having to pay it back:

I’m probably resigned to it being long-term. It’s the fact that it says ‘You’ve only got to pay it back when you die’ which makes me think that – Cohort 2, Male, 45 to 54, Average claim’

4.4 Implications for policy

RQ5. Are SMI loans seen as a temporary or long-term solution to financial difficulties?

There was no consistent answer to this question and for many respondents their view might change after agreeing to receive SMI.

Most of those applying for SMI seemed to be thinking short-term at the time; they had mortgage arrears and payment demands and needed an immediate solution. SMI was imperfect for this purpose due to the waiting time, but they were willing to take, or felt compelled to take, any solution available which allowed them to remain in their home. Once claiming SMI, they often had more room for financial planning, although whether this was due to SMI or more distance from the event that led to a need for SMI is hard to say.

Cohort 1 recipients were more likely to see SMI as a long-term solution. For many in this group, they did not anticipate being able to work again, so saw themselves relying on SMI for the foreseeable future.

There were a mix of responses amongst Cohort 2 recipients. Some said they saw SMI as a temporary solution while they got back on their feet after a period of financial difficulty, while others still saw it as a permanent situation.

This suggests that in the main, SMI will remain a long-term payment to most claimants, since a large majority have experienced traumatic life events (e.g., sudden disability, terminal illness) which have left them unable to work. For this group, unless SMI pays off the mortgage, the situation may be permanent. There may, however, be scope for some recipients to move off SMI, especially among younger Cohort 2 respondents who have entered SMI due to more temporary health or employment setbacks.

RQ6. Does the current level of SMI provide sufficient support?

SMI can be seen from the evidence above to provide support which enables many recipients to avoid arrears and possessions. Generally, recipients report a modest improvement in their circumstances relative to not receiving SMI previously, and a substantial improvement relative to a hypothetical situation with no SMI.

However, many recipients do not expect to be able to pay off their mortgage even with help from SMI. The payments may be enough to prevent possession, but not enough to reduce arrears, or in some cases not enough to prevent increasing arrears, especially if the household is larger. Some called for tailoring of SMI payments to individual household circumstances.

SMI was reported by recipients to free up money to pay for daily needs. However, many also continue to experience substantial hardship in their daily lives, for example sometimes needing to reduce consumption of essential goods, including food. Although many recipients expect a positive outcome, a large group still believe they are likely to have to leave their home, or to continue claiming SMI indefinitely, as long as their mortgage lender permits that.

RQ7. To what extent does the removal of the zero earnings rule incentivise work for current claimants?

There is no clear evidence for recipients already on SMI moving into employment in large numbers; while it is true that awareness could be improved, the profile of SMI recipients at Cohort 1 suggests that this is primarily due to the profile of the existing recipient base (mostly retired and mostly disabled) rather than a lack of success in incentivising employment.

Generally, it could be said that the removal of the rule does incentivise work, but that the impact of this is limited by few existing claimants being in a position to work. However, as explored in Chapter 2, it has brought significant new groups of people into SMI claims who previously would have lost their home.

RQ8. Are the current capital limits sufficient to provide the protection needed by claimants?

Evidence from the research is relatively limited since respondents typically had limited knowledge of how their SMI payment was calculated, and could not separate the potentially very large impact of interest rate changes on their mortgage from the impact of the capital limit. When asked to comment on the quantity of SMI received, they were usually unsure how much it was, or just grateful to receive any payment.

However, those receiving larger payments (more than £300 per month) or larger amount outstanding on their mortgage (more than £150,000) are much more likely than other claimants to expect to leave SMI by selling the home than to leave it by any other route. This indicates that these larger claim payments are not offering a sustainable route for the recipients to remain in their homes long-term.

RQ11. How, and to what extent, does the scheme prevent arrears and possessions?

The research provides plentiful evidence that SMI has prevented many possessions; recipients agree generally that it moves their finances in the right direction, and are often pleased with the impact of the benefit on their lives.

However, there are situations where participants revealed their financial situations are unsustainable and SMI may not prevent possession, where households have above-average costs, or where the mortgage payment is much larger than the SMI payment (whether due to capital limits or recent interest rate changes). In many other cases, mortgage arrears are frozen rather than reduced, since recipients are left with insufficient funds to pay off the arrears, with many continuing to experience substantial hardship. For recipients on interest-only mortgages where the lender will not renew the mortgage at the end of the term, SMI may stave off possession rather than prevent it.

5. Conclusions

This chapter brings together key findings from across the research with SMI recipients, to answer the research questions. Overall, we find that despite issues with the application process, SMI is a successful scheme in preventing possessions and arrears, although severe hardship remains among recipients, and for some their situation remains unsustainable in the long term. Changes made in April 2023 have widened the scheme’s appeal and incentivised work, but most existing SMI recipients are unable to work for other reasons, limiting the impact.

Research questions

RQ1. What are the main reasons recipients apply for SMI in the first place?

The research showed that most recipients of SMI started to buy a property with a mortgage, but then encountered an unexpected life event which prevented them from working, most commonly the onset of an illness or disability for themselves or their partner, but also losing a job or another change in personal circumstances such as divorce or bereavement. Even in Cohort 2, which allows working recipients with Universal Credit, many had a disability. Despite this, few people apply for SMI in order to fund disability adaptations to their home.

It was identified at the scoping stage of this research that SMI was intended to target only recipients previously unable to pay their mortgage without support. The survey indicated success in targeting this group; the vast majority were already experiencing substantial hardship and had already tried other methods to pay their mortgage arrears.

RQ4. What are recipients’ experiences of navigating the SMI system?

Many found the process straightforward and, in those cases, tended not to comment much on it. Although, it is important not to overstate issues with the process, a substantial number did experience difficulties, and due to the situation when they were seeking SMI. Issues included difficulties obtaining the form through the UC journal, completing the form with confidence, and time taken to approve the form, often due to forms being lost in the post.

Recipients often suggested the process could be moved online to reduce these problems. However, some other improvements could potentially be made in the interim, for example to the timing of issue of the form (which is typically issued only at the end of the eligibility period, not allowing for the time applications take in practice), to support and guidance, or to communication to applicants via lenders.

RQ5. Are SMI loans seen as a temporary or long-term solution to financial difficulties?

Cohort 1 recipients were more likely to see SMI as a long-term solution. For many in this group, they did not anticipate being able to work again, so saw themselves relying on SMI for the foreseeable future. For this group, unless SMI pays off the mortgage, the situation may be permanent. There were a mix of responses amongst Cohort 2 recipients. Some said they saw SMI as a temporary solution while they got back on their feet after a period of financial difficulty, although the waiting period made it imperfect for this, while others still saw it as a permanent situation.

RQ6. Does the current level of SMI provide sufficient support?

Generally, SMI recipients report a modest improvement in their circumstances relative to not receiving SMI previously, and a substantial improvement relative to a hypothetical situation with no SMI. SMI was reported by recipients to free up money to pay for daily needs. However, many also continue to experience substantial hardship in their daily lives, needing to reduce consumption of essential goods, including food. While payments are usually enough to prevent possession, sometimes they do not allow reducing arrears or payment of the non-interest portion of the mortgage, especially if the household is larger. The survey shows this situation is associated with recipients reporting a negative impact on their mental well-being.

RQ7. To what extent does the removal of the zero earnings rule incentivise work for current recipients?

Generally, it could be said that the removal of the rule does incentivise work, but that the impact of this on existing recipients is limited by few being in a position to work. However, it has brought significant new groups of working people into SMI claims who previously would have lost their home. Many of those who had moved into employment felt that the rule change had been key to allowing this.

RQ8. Are the current capital limits sufficient to provide the protection needed by recipients?

Evidence from the research is relatively limited since respondents typically had limited knowledge of how their SMI payment was calculated, and could not separate the potentially very large impact of interest rate changes on their mortgage from the impact of the capital limit. When asked to comment on the quantity of SMI received, they were usually unsure how much it was, or just grateful to receive any payment.

RQ9. Should criteria for eligibility be altered or extended?

Currently eligibility criteria appear well-targeted, but this research was not able to determine reasons recipients do not apply for SMI, or whether there are significant numbers of non-applicants who would be eligible. This was explored by research in 2020 following the conversion of the SMI benefit to a loan^{[footnote 33]}.

RQ10. To what extent have the recent changes to SMI eligibility affected recipients’ decisions to apply?

The change in rules has been accompanied by a change in the profile of SMI recipients; while Cohort 1 recipients (from before the rule change) are primarily above retirement age and a large majority are disabled, Cohort 2 recipients are somewhat closer to the average demographic profile of mortgage holders in England, and some are working or have children. There is no evidence that Cohort 2 recipients were in substantively less need than Cohort 1; they also tend to make larger claims (in terms of pounds per month) since their mortgages are at an early stage, which may increase the headline cost of SMI for government relative to the number of recipients. Most recipients interviewed said that if they lost their homes they would rent privately; this would mean claiming housing related benefits, which since they are benefits, rather than loans, would incur greater costs for government overall.

RQ11. How, and to what extent, does the scheme prevent arrears and repossessions?

The research provides plentiful evidence that SMI has prevented many possessions; recipients agree generally that it moves their finances in the right direction and are often pleased with the impact of the loan on their lives. There is clear evidence from the survey that risks of possession and arrears, and general hardship, would rise among households were the payments withdrawn.

However, there are situations where SMI might not prevent possession, particularly likely among single parent households, or (from interviews) where the mortgage payment is too large for the whole interest payment to be covered by SMI. Households who remain on interest-only mortgages while on SMI, perhaps as a result of ongoing hardship even with SMI, may face serious difficulties at the end of their mortgage term. From interviews, reducing waiting time for SMI may be key; a long waiting period can worsen the situation of applicants prior to payment, making it more difficult for them to recover, and in turn making the SMI payment less likely to succeed in preventing possession.

6. Annex: Lender insight

This annex provides insight into the views and experiences of lenders, gathered through 6 interviews with lender representatives. In general, lenders understood and supported the concept of SMI and felt its impact was positive, but had reservations about the detailed design and implementation of the scheme, which they felt limited its impact on recipients.

6.1 Methodology

Lenders were selected to provide a cross-section of views from across the mortgage-lending industry, including from large banks, building societies and specialist lenders. Due to a number of challenges in securing interviews with this audience, only 6 lenders were interviewed, and therefore this section of the report is presented in a separate annex, and findings are not brought together with those from the recipient survey and interviews.

The majority of lender staff interviewed were in assistant manager or team leader roles, in these cases directly leading teams working with SMI recipients. Many of the interviews included multiple members of staff, in order to cover strategic and frontline roles. This often resulted in them not knowing much about SMI due to them not dealing with recipients on a day to day basis.

Contact was made through UK Finance and the Building Society Association (BSA), whose contribution to the research through their efforts is greatly appreciated.

Interviews took place via Microsoft Teams, between February and September 2024, and were most often with multiple managers at lenders, overseeing customer-facing teams working with customers in arrears.

Findings from qualitative interviews represent of the views and experiences of participants, and descriptions and quotations of individual views and opinions should not be considered to be research findings, nor do they imply agreement or endorsement by DWP or IFF Research. Bias may occur in lender interviews, since lenders financially benefit from SMI. However, it should be noted that lenders spoken to felt the impact of SMI on their customer base was negligible due to its niche usage, and although some did advocate wider eligibility or somewhat increased payments, this was not their main focus.

Further details of the method are found in the Technical Annex.

6.2 Lender views

6.21 Understanding of SMI

Overall lenders do seem aware of the SMI loan, though their level of knowledge varies between them, with some knowing more than others. Understanding of SMI among lenders’ customer-facing teams was highly variable.

There was a mixed response from lenders about their awareness of the changes in April 2023; some knew of all the changes; some knew of the changes to eligibility; while the rest were not aware of the changes at all. Those that were not aware felt that DWP themselves should have notified them about the changes so that lenders could better signpost customers to the SMI loan. A couple felt that it was not relevant to them, since they believed recipients should find out about SMI independently or via DWP.

However, most lenders felt comfortable in discussing SMI with borrowers, and said that most or all of their customer-facing teams were aware of SMI. For example, staff might be able to explain how it had changed from a benefit to a loan, and what benefits they would need to be receiving to be able to claim it.

I think the team are fairly comfortable with it – Lender.

Some did admit that their staff had only a very basic understanding of SMI and several mentioned they did not directly promote SMI to borrowers in arrears.

They did not necessarily understand what SMI would cover, for example, in terms of amount of interest. In some cases, this lack of knowledge extended to the customer-facing team as a whole, including the senior individuals interviewed. In particular, there was low awareness that customers could be in work at the same time as claiming SMI:

If you have a job, such as ourselves, we would not be able to claim SMI, would we? – Lender.

There were instances of lenders with more knowledgeable members of staff who could discuss SMI in detail with customers who had expressed an interest in SMI. This is not to say that other lenders interviewed did not have members of staff with similar knowledge, but the more senior staff members interviewed often had limited knowledge about SMI.

However, given we spoke to leads of customer service and team leaders, this is likely to be reflected at least to some extent in communications with borrowers by lenders’ staff.​ This may be indicative of the siloed nature of work that takes place across banks and building societies; there may also be other teams within lending organisations with better knowledge of SMI, but without a customer-facing role.

6.22 Usage of SMI

From the lender perspective, SMI makes up a small proportion of borrowers, even among those in arrears. Lender representatives we spoke with were unaware of the proportion of their borrowers using SMI, and sometimes said they did not have the tools or information required to make an estimate. Where they could be made, estimates of the proportion of those in arrears receiving SMI ranged from 7% to 25%, or less than 1% of all mortgage borrowers. Prevalence seemed lowest at large banks; all interviewed felt they probably had fewer than 500 customers on SMI. One felt there could be many more borrowers eligible for SMI but unaware of it.

SMI is designed such that lenders have a role to play in recipients’ decisions to take up SMI.

In interviews, we found that some discussed SMI with borrowers on a regular basis, and for some it was rare, and only mentioned if the recipient brought it up. With some lenders, their potential to raise awareness and increase up-take was hindered by a limited or outdated understanding of how SMI works, needing to refer onward for details. Misperceptions might also affect the decision to mention SMI to borrowers in the first place; for example, in addition to a lack of awareness of the eligibility of working recipients mentioned above, one mentioned that they believed it was only available as a temporary stopgap loan; in fact, it can be claimed long term.

There were wide differences in the level of pro-activity among lenders regarding SMI; some would (sometimes on principle) only refer a borrower to the benefits system generally, while some would go into some detail with them about their options. Some felt they needed more information on the SMI loan from DWP so that they then could discuss it better with borrowers:

The extent of our knowledge is really just knowing it exists, and signposting borrowers to… find out a bit more about it – Lender.

Some lenders said they did not routinely advise borrowers that SMI is an option, partly due to this lack of knowledge. One said they did not mention SMI until several months of joblessness, until arrears had built up so that no other options were available, although another felt that this approach by lenders was counterproductive.

It’s [seen as] a last resort for people that don’t want to lose their home… [I] think they could receive it earlier. They are already in arrears, so the earlier they can receive it the better it would benefit them – Lender.

For some lenders, the time taken to receive it is a deterrent to recommending SMI at all, causing some lenders to prioritise help which will take less time for them to receive, if available. This was also reported by lenders to deter borrowers from using it:

It feels like it’s a long time to wait to get the backdated payments… and I know that it’s just the processing time and it’s just when a customer’s really struggling, I know we get it eventually, but… [during that time] it’s impacting the customer’s credit file – Lender.

One lender mentioned that borrowers can be very nervous when telling their lender they are in financial difficulties, fearing that the lender will repossess if they mention problems, so people who call are often already in significant difficulty, creating further delay.

Some of them are quite savvy… but then quite a lot of others, you know, they’re not too familiar with mortgages… and they just get very scared to ring… What’s going to happen? [We’re] like ‘you only missed one payment. No, we’re not going to take your house off you, there’s lots of things we can do – Lender.

One lender said they felt they could not talk about SMI to borrowers since they were not legally able to do so; they felt it was the role of an Independent Financial Advisor to suggest SMI to borrowers. It is unlikely that recipients in a situation requiring SMI would be able to afford the services of an IFA, so this may present a barrier to applications. One mentioned making a referral to a charity, who might be able to help with advice for free. However, most would at least refer borrowers to the benefits system:

We’re… dealing with the customer from a mortgage perspective. What we would generally do is refer them to check eligibility for all types of benefits. We wouldn’t specifically go through them with say you are eligible for SMI – Lender.

Most lenders said they only have a very small number of SMI among their borrowers, even relative to the population of borrowers with arrears. One mentioned that they cannot tell how many borrowers are using SMI since they are not told by DWP, although it is unclear whether this applies simply within customer-facing teams or at the lender as a whole.

One lender said that they suspected there were a much larger number of borrowers eligible for SMI than were claiming it; they were actively seeking to raise awareness of the policy through establishing a specialist team to provide support.

Views on the types of people claiming SMI varied between lenders. Some felt nothing noticeable had changed, but others did feel there had been a change in recent years, with a wider and less definable group of borrowers becoming SMI recipients. One had noticed families had started to claim; they felt this reflected change in the economy, rather than eligibility criteria.

I suppose the difference is… it’s new people in arrears, whereas before we were… finding that there was a pattern – [the same] customers were going in and out of arrears… But now, we’re seeing that customers who have been paying for a long time are now finding it difficult – Lender.

Some lenders commented that despite the changes they had not noticed any differences in the kind of customers receiving SMI.

Lenders do form a view on how useful to the recipient a SMI loan could be to a borrower; for some, this a deciding factor for lenders on if they will refer recipients to SMI. One lender mentioned that they work out the interest and how much SMI recipients will get, so that they can then look at if it would be worthwhile for them.

Due to the fact that it is a loan, and they will have to repay it, some lenders feel there are better options available to recipients. Multiple lenders reported that borrowers were reluctant to take out further loans in reaction to being unable to repay a loan. One reported that some of those who moved forward with an SMI claim appeared unaware that there would be a legal charge on their property, or what that meant in practice.

It does seem quite difficult to understand from a customer perspective, [which is] why it takes so long to get the acceptance – Lender.

In addition, the time taken to receive it is a deterrent, causing some lenders to prioritise help which will take less time for them to receive, if available. This was also reported by lenders to deter borrowers from using it:

It feels like it’s a long time to wait to get the backdated payments… and I know that it’s just the processing time and it’s just when a customer’s really struggling, I know we get it eventually, but… [during that time] it’s impacting the customer’s credit file – Lender.

For some it can cover most of their payment, however those with larger payments will still have a lot to pay each month that they might not be able to cover, and lenders take this into account. One noted that SMI is useful as a short-term stopgap, but only works long-term if it covers the majority of the monthly payment:

It depends really what the customer’s circumstances are. If it’s a short-term issue, then reduced payments for a few months [via SMI] and then going on to then paying your monthly payment plus a little bit to pay off the arrears works really, really well. But if it’s more of a longer-term problem, the options are… more limited. It does work long term, [but only] if it’s covering the majority of the monthly payment, or the customer can pay the rest of the monthly payment themselves – Lender.

6.23 Administering SMI

Many lenders feel that the whole process could be much easier, at both application stage and payment stage, although some were little involved, leaving it to the recipient:

Well, we’re not particularly involved. We don’t know enough to be able to understand the process to be able to support the process – Lender.

Those that did become involved emphasised strongly that SMI was a very time-consuming and complex process for them and for applicants, and suggested there should be an online application process.

I think there’s quite a lot of improvements that could be made there. It seems like a very long process for the customer to make the application to the point where they get the benefit… it’s all paper based! – Lender.

It could be easier for us, and for customers. It’s quite time consuming, and also complicated to put it into our system. And sometimes there are delays – Lender.

One said the paper form worked relatively well, but then went on to detail problems which followed later; another admitted that only a few of their staff knew how to deal with SMI forms and processes, causing delays.

There were a range of factors cited:

• Lenders reported that some borrowers found it hard to obtain application forms
• Due to DWP having multiple offices, lenders are not always sure where to send the form, sometimes meaning that it can get sent to the wrong place
• Completed application forms are not always received by DWP because they can get lost in the post, or appear to be sent between offices and lost at that stage
• Lenders feel that during the process they are not able to keep recipients updated, since DWP does not provide them with updates. Neither can customers contact DWP directly about it, since Jobcentres seem not to have information about SMI claim progress either
• Decisions were seen by some as inconsistent with some applications getting accepted and others not, but then not being told the reason for why it did not get accepted, with one speculating that regional offices were following subtly different practices. Lenders find this can be quite hard for them and also the recipient as they are not able to provide the recipient with a reason why their application was not accepted
• Some lenders noted that even after an SMI application has been accepted, it can be a long time before payment is made, causing stress to recipients
• Once payments were made, instalments could come at awkward times, often initially unexpectedly
• Payments came in 13 annual instalments (paid four-weekly) when the mortgage is charged in 12 instalments (by calendar month), making working out payments challenging

This is trying to support customers, and it just seems to be like [there is a] lack of clarity and process at times, or sometimes it works, sometimes it doesn’t, and you know, it just seems to be the customers that [are] impacted – Lender.

6.24 Views on impact of SMI on recipients

Many lenders felt the SMI loan was effective in preventing possessions as they feel it helps to ease financial pressure, but usually felt it needed improvements. Several pointed out that the policy only helps when the SMI loan is covering most of the mortgage payment, which it often does not since the rate paid is detached from the actual mortgage rate charged to the customer.

If SMI is not covering the mortgage payment, the results can be negative:

I think it can be effective depending on the customer’s monthly payment and what it is… you see cases where the SMI payments literally cover the customer’s monthly payment and for them it’s absolutely fantastic. [But] the other cases… the only reason it doesn’t work well is because the customer’s monthly payment is too high for the… SMI money… and they just can’t cover the shortfall and they’re just going further and further into arrears – Lender.

One lender noted that recipients could be left in a worse place than they started in this situation with a low SMI payment relative to their mortgage payments, and it might sometimes have been better for them to possess the property immediately.

Actually, it would [have] been … better just leaving it and maybe taking action sooner… because obviously if they can’t make the payments, the balance is going up and up. Would it have been better to not make the claim in the first place? – Lender.

Lenders that find the SMI loan effective feel it could do more for recipients and could also reach a lot more people if there was more awareness of it, and if claims therefore started earlier before arrears had built up, taking a more preventive role. They feel not enough people know about it and so it is not reaching the full target audience:

If as affordable as can be then its good. But [I’m] not sure how [much] it’s having an effect, [because] not enough people are receiving it due to lack of awareness – Lender.

I think it can be effective depending on the customer’s monthly payment and what it is…And of course, it’s going to avoid possession again, if it pays part of the monthly payment and the customer can pay the other part – Lender.

One lender felt SMI was ineffective, but this was based on the perception that it was a short-term benefit, and would thus only stave off possession for a short time. Another flagged the impact of SMI being withdrawn suddenly (for example, due to leaving benefits or benefit sanctions) and this resulting in problems for both the bank, who are not notified, and the customer.

Along with this, those that feel it is not very beneficial for recipients feel the whole application process is a barrier to SMI having a positive impact. They explained that not knowing when the recipient is going to receive their first payment is not very helpful as it can cause more stress and financial struggle as they can be waiting long periods to receive this payment, meaning they are falling even further behind on their payments and the impact of the payments is therefore lessened when they do arrive.

It’s quite complicated, if you’re struggling it could be quite overwhelming, too much information for the customer to take on – Lender.

However, those that were aware of the changes to the rules in April 2023, did feel it was a positive step in the right direction, due to its opening it up to more customers on lower income, and also reducing the wait time for payments meant more people could claim it and get back onto paying their payments. However, they did feel that 3 months was still too long to wait, and recipients could still fall into further arrears during this period.

Overall lenders mostly see the SMI loan as a partial solution for recipients, they feel it is there to help them get back on track with their mortgage payments, but it is not something that can be relied upon by all, or that can always help in the long term, especially if the SMI payment falls substantially short of the mortgage payment.

6.25 Views on impact of SMI on their own business

Most lenders feel that that the SMI loan carries a significant administrative load for them, relative to the number of cases involved; they felt it needed to be simplified to make it an easier process for everyone. This could be achieved by making it a digitised process and making it easier for recipients and lenders to receive updates on the progress of an application. They feel this would make the whole process a lot smoother for everyone involved.

We’ve got customers who are falling into arrears because we don’t know what’s coming. We’ve got customers who are potentially overpaying because we don’t know what’s coming and either one of those 2 things are equally as bad for the customer for different reasons – Lender.

Lenders also felt that recipients had to wait too long to receive payments, once their SMI application had been accepted, with long wait times experienced even after the change in wait period from 9 months to 3 months. They also felt that communications from DWP to them could be improved, although again it is unclear whether this is because of a lack of DWP communications, or because information is not being passed on within lenders.

Lenders also fed back that the amount that could be claimed needed to be increased, since it was falling behind mortgage rates and residential property values in some parts of the country:

You know that the amount that they can claim, it feels like that’s …been the same threshold for a number of years, although we know that mortgage balances that people are taking have increased – Lender.

Lenders’ forbearance practices had not usually changed as a result of SMI. Lenders stated that only small proportions of their customers were taking up SMI even when they got into financial difficulty, primarily as a way to avoid getting into further arrears. Estimates of the proportion of those in arrears receiving SMI ranged from 7% to 25%. Prevalence seemed lowest at large banks; all interviewed felt they probably had fewer than 500 customers on SMI.

Overall, SMI makes up such a small number of lenders books that they feel it does not have much impact on their business. Some lenders said that they don’t know how many customers are receiving SMI.

Regarding the capital limits set for SMI, one lender commented that these had not increased for a number of years, although mortgage balances have increased (with rising property values), and saw this as a problem for claimants. Several lenders felt that interest rates paid by SMI falling behind the market left some customers with insufficient support to fully address their affordability problems.

They generally believe SMI makes possession less likely for some types of borrowers, but note it does not prevent possession for all recipients. They also noted that national levels of arrears and possessions were not heavily impacted by SMI. This was partly due to the low prevalence of SMI, and partly due to what was felt to be a relatively low level of support provided currently relative to prevailing interest rates. The general consensus (although with exceptions) was that across their lending portfolio as a whole, possessions were increasing slowly. Lenders generally believe SMI makes possession less likely for some types of borrowers, but some said it did not prevent possession for all recipients.

6.3 Implications for policy

This section explores the implications of the lender interviews for answering the research questions. The lender interviews cut across a wide range of research questions, since the research questions are grouped around themes applying to all research strands. The answers below are therefore partial answers to the questions, and should be viewed together with those from chapters focusing on recipient views and experiences. However, the findings below are based on only 6 interviews and are presented separately.

RQ1. What are the main reasons recipients apply for SMI in the first place?

This research question is answered in the main report, but lenders add some further insight, suggesting that mortgage-holders are generally unable to pay their mortgage without support by the time they apply for SMI.  SMI is generally used as a last resort, perhaps excessively so, since borrowers are often in a very difficult position by the time payments arrive. This might, however, be seen as efficient in that those which can be helped by lenders without SMI generally are, prior to SMI being considered.

While lenders are aware of and have some understanding of SMI, in line with evidence from the recipient survey which indicates most recipients hear about SMI through DWP, they are not normally proactive about it. They do however report weak awareness among borrowers and suggest there are many who could benefit from SMI but who are unaware of it.

RQ2. To what extent does SMI impact on lenders’ forbearance practices?

In general, SMI has little impact on lenders’ activities, because generally it affects a very small proportion of borrowers, even those in arrears. Although borrowers do identify recipients who struggle with repayments, they often do not engage strongly with SMI claims, either in terms of encouraging them or supporting them.

They generally believe SMI makes possession less likely for some types of borrowers, but note it does not prevent possession for all recipients. Some lenders believe they may be unaware of SMI claims by borrowers, which also limits the impact on lender behaviour.

RQ3. Do lenders understand SMI, and what is their experience of the scheme?

Lenders do generally understand the basic aims of SMI, but lack of detailed knowledge regarding eligibility and payment rates is a barrier to discussions. Where there is knowledge, however, this does not mean they will always discuss SMI with borrowers; some feel it is not their role, and some are concerned that discussing SMI in detail with borrowers might constitute financial advice which they are not legally allowed to give. It is important to ensure that lenders are not being overly cautious in this area, given the potential cost and/or difficulty of obtaining independent financial advice for households already experiencing financial problems.

Lenders generally find the scheme cumbersome and difficult to work with, including the paper-based application process, and the process of receiving payment. Concerns focus primarily on the unpredictable and slow application process, and the lack of information for both lenders and recipients during the process.

RQ5. Are SMI loans seen as a temporary or long-term solution to financial difficulties?

This research question is answered more fully by research with claimants, but lender interviews add that SMI is usually seen by lenders as a long-term solution, but only if set at a rate high enough to prevent further arrears accruing, and if it starts early enough that an unsustainable quantity of arrears have not already been accrued. It is not generally seen as a short-term solution because of the time taken to apply, despite the reduction in the period which borrowers must wait to claim.

RQ8. Are the current capital limits sufficient to provide the protection needed by recipients?

This research question is answered more fully by research with claimants; lenders were not very concerned by capital limits in themselves and appeared unsure of the details of these. However, they were concerned about SMI payments being set low compared to recipients’ mortgage payments (which can be a consequence of capital limits), and some felt these payments were wasted since possession was likely anyway in these cases.

RQ9. Should the criteria for eligibility be altered or extended?

Lenders made various suggestions for changes to SMI, but these focused mostly on changes to systems and communications, not changes to eligibility, although this may be in part because they often did not have a detailed understanding of existing eligibility rules for SMI.

RQ10. To what extent have the recent changes to SMI eligibility affected recipients’ decisions to apply?

Lenders had seen a recent move toward more families claiming SMI, but generally did not attribute this to the changes to SMI, but rather to the wider economic situation. They had not seen dramatic changes, generally, but some emphasised that they were unsure if they would be aware if a borrower was receiving SMI.

RQ11. How, and to what extent, does the scheme prevent arrears and possessions?

This research question is answered more fully by research with claimants, but lenders were cautiously optimistic that SMI was preventing arrears and possessions, in general, although a couple were sceptical of its effectiveness, and more felt it could be improved.

Most felt that any payment to distressed borrowers was welcome, but that it would be more effective if it were easier to access, more linked to the mortgage level and delivered sooner, before arrears had a chance to build up to unsustainable levels.

In general, however, lenders felt the impact on arrears and possessions in the aggregate across the economy was minimal, since such a small proportion of their borrowers used it. It therefore has no impact on their willingness to lend to lower income homeowners.

1. HM Treasury Evaluation Task Force (2011). The Magenta Book. ↩

2. House of Commons Library (2023). Research Briefing: Support for Mortgage Interest Loans. August 2023. ↩

3. The lower limit also applies to SMI cases relating to working age people who first applied to receive SMI prior to 2009. ↩

4. The capital limit does not apply to loans made for disability adaptation. ↩

5. The research is not intended to assess the broad nature of SMI as a benefit or loan. ↩

6. As might be achieved by, for example, a quasi-experimental design or randomised controlled trial. ↩

7. Significant differences were identified to a 95% confidence level, against the result for all other sub-groups combined. ↩

8. This sub-group’s response was proven (to a 95% confidence level) to be higher than that for all other sub-groups combined. ↩

9. These sub-groups’ responses were proven (to a 95% confidence level) to be different than that for all other sub-groups combined. ↩ ↩² ↩³ ↩⁴

10. These sub-groups’ responses were proven (to a 95% confidence level) to be different than that for all other sub-groups combined. ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷ ↩⁸ ↩⁹

11. 51% of respondents said ‘other’ when answering this question. ↩

12. Employment status, and SMI usage, sometimes changed between sampling (December 2023) and the date of the survey (July to August 2024). ↩

13. Not currently working (seeking work). ↩

14. Including both married and unmarried partners. ↩

15. i.e., containing at least one adult who was not retired. ↩

16. Source: DWP (2022). Family Resources Survey 2022 to 2023. ↩ ↩² ↩³

17. Base: All those divulging household income, including zero income (713). ↩

18. DWP (2022). Support for Mortgage Interest Loans: take-up. March 2022 ↩

19. This sub-group’s response was proven (to a 95% confidence level) to be higher than that for all other sub-groups combined. ↩

20. This sub-group’s response was proven (to a 95% confidence level) to be higher than that for all other sub-groups combined. Amongst all recipients, 36% found their lender to be very helpful. ↩

21. These sub-groups’ responses were proven (to a 95% confidence level) to be higher than that for all other sub-groups combined. ↩ ↩² ↩³

22. This sub-group’s response was proven (to a 95% confidence level) to be higher than that for all other sub-groups combined. ↩

23. These sub-group’s responses were proven (to a 95% confidence level) to be higher than that for all other sub-groups combined. ↩

24. This sub-group’s response was proven (to a 95% confidence level) to be higher than that for all other sub-groups combined. ↩

25. These sub-groups’ responses were proven (to a 95% confidence level) to be higher than that for all other sub-groups combined. ↩

26. This sub-group’s response was proven (to a 95% confidence level) to be higher than that for all other sub-groups combined. ↩

27. This sub-group’s response was proven (to a 95% confidence level) to be higher than that for all other sub-groups combined. ↩

28. These sub-groups’ responses were proven (to a 95% confidence level) to be different to that for all other sub-groups combined in each case. ↩ ↩²

29. These sub-groups’ responses were proven (to a 95% confidence level) to be different to that for all other sub-groups combined. ↩

30. These sub-groups’ responses were proven (to a 95% confidence level) to be different to that for all other sub-groups combined. ↩

31. The size of this group cannot be determined from the survey carried out for this evaluation since the sample consisted of current recipients of SMI. ↩

32. These sub-groups’ responses were proven (to a 95% confidence level) to be different to that for all other sub-groups combined. ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷ ↩⁸

33. DWP (2022). Support for Mortgage Interest Loans: take-up. ↩