Many people have struggled financially since the onset of the Covid-19 pandemic. In the UK, we saw a record high in redundancies in 2020 and an unemployment rate of 4.8% this year.
Therefore, it is not surprising that many homeowners are exploring ways to save money on their mortgages and reduce their monthly outgoings.
However, before homeowners commit to changing any payments, we would advise they seek expert advice from a mortgage broker or financial adviser. Whilst many schemes and products may seem appealing at first, it is important homeowners do their research to ensure they are aware of the fine print when committing to new payment plans.
Here, we explore two ways homeowners can look to save on their mortgage:
Support for Mortgage Interest (SMI)
Support for Mortgage Interest (SMI) is a scheme designed to support homeowners financially towards interest payments on mortgages, or loans taken out for certain repairs or improvements within the home.
It is paid as a loan to help pay the interest on your mortgage, however, the loan itself has its own interest, increasing the amount owed. The loan will need to be repaid when you sell or transfer ownership of your property. If on the other hand you choose to move to another property, you may be able to transfer the loan to your new home.
To be eligible for SMI, you need to be claiming one of the following benefit:
- Income Support
- Income-based Jobseeker’s Allowance (JSA)
- Income-related Employment and Support Allowance (ESA)
- Universal Credit
- Pension Credit
However, there are strict guidelines on qualifying for the loan. If you’re claiming Income Support, income-based Jobseeker’s Allowance or income-based Employment and Support Allowance, you will need to have claimed for 39 consecutive weeks before applying.
Similarly, if claiming Universal Credit, as long as you’re not getting certain income such as statutory sick pay, statutory maternity or adoption pay, you must wait until you have received this benefit for nine consecutive months before being considered for SMI. Whereas, those receiving Pension Credit are able to apply immediately.
In light of the Covid-19 pandemic and those who have suffered financially, there have been calls to reform the SMI scheme from two professional bodies – The Building Societies’ Association and UK Finance.
The calls to reform include two key changes; reducing the waiting time from 39 weeks to 13 weeks and to allow those on Universal Credit to claim SMI if they are working reduced hours.
Increasing the support SMI provides by widening eligibility criteria would prove vital to many homeowners who are struggling to keep afloat. Reducing the current requirement of waiting an extensive 39 weeks or nine months to claim SMI could make a real difference and save many families across the UK from going into arrears.
Additionally, with many people working reduced hours and many businesses taking advantage of the furlough scheme over the last year, many homeowners have received a reduced income and have been unable to claim SMI.
A change to the zero-hours income rule and wait time could have a significant impact and prevent households across the UK from plunging into debt.
Remortgage
Remortgaging is where you swap your current mortgage for another. You can remortgage with your current lender or choose a different one. One of the key reasons homeowners choose to remortgage is to get a better rate and save money. In fact, you could save up to £290 a month on mortgage repayments by remortgaging to a new fixed rate deal.
Remortgaging can help you financially in a variety of ways, including:
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Reducing your monthly payments
By shopping around and seeking advice from a broker, you may be able to find a mortgage deal with lower monthly payments, enabling you to save on outgoings each month.
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Fixing your monthly mortgage payments
If you’re on a variable rate mortgage, you could move to a fixed rate mortgage deal for stable monthly payments for a fixed amount of time, usually two or five years.
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Securing a competitive interest rate on your mortgage
Some mortgage deals offer a lower interest initial period. However, when that period ends, you may well be able to secure a better deal by remortgaging.
For the first time in four years, some mortgage deals are now available with an interest rate below 1% so it is worthwhile doing your research to find the best rates available to you.
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Enabling you to consolidate debts
Interest rates on mortgages are usually lower than those on credit cards and other loans. So, it may be worth combining your other debts into your mortgage.
While you may get a lower rate, if you increase the length of time you are paying back the loan it could end up costing you more in the long run. It is important you discuss your options with a mortgage broker or financial adviser before you make a decision.
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Helping you to adapt to a new financial situation
If you are struggling financially and looking to save more money, remortgaging could help reduce your monthly outgoings. Likewise, if your financial situation changes, remortgaging could help you find a deal better suited to you.
If you choose to remortgage, you should begin by using a remortgage calculator to calculate how much you could save by moving to a new deal. If you would like to remortgage before the end of your initial deal, It is worthwhile checking with your lender for any early repayment charges. If moving to a new lender, it is likely they will check your credit score so ensure you look at this and how you can boost your score.
Many homeowners believe they are locked into a mortgage when they purchase a home, however, there are ways in which you can look to change your deal and even your lender. Before considering changing your mortgage, speak to a broker or financial adviser who can share expert advice and recommend deals suitable for your personal circumstances.
Miles Robinson is head of mortgages at online mortgage broker, Trussle
