SMI

Altior

I have done a fair amount of research around this 'benefit' feature ie loan. From what I've read, since it was changed to a loan, the take up is not huge. Consequently I couldn't find a great deal of real world experience of the tool online, and have a few remaining questions:

1. There is a waiting time of three months, however it is stated this doesn't apply if you are moving from another benefit to UC. Does this also apply when moving to UC from NS ESA, ie non means tested to means tested.
2. What happens if the mortgage interest rate is less than the calculated dwp/government payment. For example, currently the calculated government payment interest rate is 3.66%, but the actual mortgage fixed rate is 1.1%. Will the additional monthly payment amounts above the real calculated interest be applied to the capital balance?
3. When is the capital balance captured to be used for the annual payment calculation. For simplicity, let's say when the application is made, the cap balance is declared to be £100K, but after three month's waiting, the cap balance is £97K (due to interim payments). Are the government payments (100K * 0.0366)/12 or (97K * 0.0366)/12?

Thanks!

KxMx

1. You don't move from NS ESA to UC. They are separate benefits which can be claimed alongside each other. The old Income Related ESA would count as moving from because UC replaced IR ESA.

Altior

https://forums.moneysavingexpert.com/discussion/comment/81897579#Comment_81897579

Thanks. That touches on another question, which is quite a long way off still (when I finally apply for UC)

The amendment to the law states:

Claimant entitled to an employment and support allowance before 6th April 2026

5.  This paragraph applies where—

(a)before 6th April 2026, the claimant is entitled to an employment and support allowance under Part 1 of the Welfare Reform Act 2007(3) that includes the support component within the meaning of that Part, and

(b)the claimant has been so entitled throughout the period beginning with 6th April 2026 and ending with the date on which the claimant is awarded universal credit that includes the LCWRA element.”.

I interpreted (b) as my entitlement to ESA would end when I was awarded UC with LCWRA (assuming that I would be). But at this point I'm not exactly sure how the two types of benefit interact. Clearly my intention is to be a "pre-2026 claimant”. Provisionally I am planning to apply for UC early next year.

But as far as you know, as it stands the 3 month waiting for SMI would apply to me (if I applied for SMI in my UC application)?

KxMx

New Style ESA can be paid alongside Universal Credit.

NS ESA is a contribution based benefit.

Universal Credit is a means tested benefit.

Your NS ESA (Support Group) would automatically mean you will get LCWRA element of UC without a waiting period (new claims have a waiting period) or repeat WCA. With your dates this would be the higher LCWRA amount.

Your UC award then has a deduction for the monthly equivalent of NS ESA, currently 609.05.

I'm not a trained benefits advisor, but my opinion is yes the SMI waiting period would apply to you.

Altior

Thanks again!

Everything I've read online indicates NS ESA runs concurrently with UC (when both applied for and eligible). However, the excerpt from the law amendment suggests that ESA needs to end when UC is awarded to be treated as a pre 2026 claimant. Perhaps it's not worded as accurately as it should be.

I guess this has not been applied or tested yet for real (the section of law I quoted), and there should be people doing it before me. So I'll revisit it later in the year. I do anticipate to have the waiting time for SMI as if I am a new applicant.

Yamor

1. You will have to wait 3 months from when you become entitled to UC. Prior entitlement to ns-ESA won't help.

2. That will be a matter for the bank, but yes, generally the capital owed will reduce.

3. The capital outstanding is recalculated once a year, so if you first become entitled to a loan on 20/04/26, then they will use the capital outstanding at that date until 19/04/27, and then from 20/04/27 they will use the capital outstanding as at 20/04/27, and so on.

Regarding the regulations you have quoted, it does not mean that the ESA entitlement had to end prior to becoming entitled to UC. It simply means that there had to be entitlement to ESA up until the date entitlement to UC starts. It does not matter if entitlement to ESA continues.

Altior

That's great, many thanks Yamor.

I want/need to make sure I time things correctly so I don't risk triggering the ERC. I'm on a fixed rate until the end of 2028, and as my rate is likely to be lower than the rate that the DWP calculates for payments in, some of it is likely to be treated as overpayments. My ERC is a static 5% so quite brutal.

Of course creating a new loan that I will need to pay off at a current 4.6% is not especially beneficial on the raw numbers, but it is a safer charge than the bank.

Yamor

What I've always wondered is whether having a second charge on the house in favour of the government would affect your chances of getting a better deal if and when you want to remortgage or even just refix.

Anyone have any idea?

Altior

I couldn't find anyone reporting negative impacts online in that respect, and the loan doesn't appear on the credit reports.

I feel like the biggest risk is that there is no cap for the interest on the loan as far as I know. It is simply what the government has to pay on short gilts being issued at the time. Potentially I could become a 'prisoner', unable to sell my property due to an escalating loan liability eroding my owned capital. It is a bit of a juggling act and calculated risk, but there's absolutely no value in doing overpayments currently. I do like a back up plan and I will be able to access TFLS in a few years if needed. But if my strategy works then I will be able to leave my DC pensions uncrystallised.

born_again

https://forums.moneysavingexpert.com/discussion/comment/81898028#Comment_81898028

Current lender would be aware, via reporting system.

If you did a simple rate switch (no financial checking) with same lender should not make any difference. But a remortage with another lender may have a effect.

Altior

Yes the SMI payments go direct to the lender and they are directly involved in arranging the SMI. I have no plans to remortgage. People on DMPs get normal new fixed rate offers with their current lender so I don't anticipate any issues, plus the lender would be getting guaranteed payments from the government.

Another option which I will likely keep in reserve is the 6 month interest only period, introduced as part of the mortgage charter. I'm not sure if anyone has invoked that when also on SMI.