About 167,000 homeowners, including 71,000 pensioners, who are struggling to pay their mortgage will see their mortgage benefit payments fall by a typical £756 a year from next month.

Under the Support for Mortgage Interest (SMI) scheme, the Government makes interest payments on the first £200,000 of outstanding mortgages for those who can't afford it. This is normally paid directly to the lender.

But from 6 July, the interest rate the Government pays will drop from 3.63% to 3.12%. It's been set at 3.63% since October 2010.

This means that on a typical £150,000, 25-year home loan, the Government's payments will fall from £454 a month to £391. That's a £63 monthly decrease, or £756 per year. See our Mortgage Arrears Help guide to find out how to protect yourself from arrears and repossession.

The Government is able to do this because of a trigger that takes effect when the Bank of England's average mortgage rate differs from the SMI rate by at least 0.5 percentage points.

The Bank's average mortgage rate for April fell to 3.12% from 3.14% in March, which is 0.51% lower than the current 3.63% SMI rate.

I'm worried about my mortgage. What should I do?

Helen Saxon, senior money writer at MoneySavingExpert.com, says: "If you're worried about being able to pay your mortgage, your first step’s to talk to your lender to warn it, and also to see if it can help. Next, do a budget and go through all your outgoings with a fine-toothed comb to see if you can find any spare cash. Use our free Budget Planner to help.

"Next, check if you're entitled to any benefits or tax credits. Use our Benefits Check-up to see what you may be entitled to. Once you’ve found out, it’s best to start claiming straight away.  

"If you're worried about your ability to be able to meet your payments on any debts, not just mortgages, contact a not-for-profit debt agency such as StepChange Debt Charity or National Debtline."

Can I get SMI payments?

You qualify for SMI payments if you get any of the following benefits:

  • Income Support
  • Income-based Jobseeker's Allowance
  • Income-related Employment and Support Allowance
  • Pension Credit (here the amount of mortgage you can claim interest payments for is capped at £100,000, not £200,000)

The scheme is up and running in England, Wales and Scotland, and there is a similar system in Northern Ireland.

Mortgage benefit to be cut for 167,000 struggling households

I'm eligible for SMI. How do I claim?

To claim SMI, contact Jobcentre Plus or the Pension Service. However, your eligibility for the scheme will automatically be assessed when you apply for an income-related benefit. See our Benefits Check-Up guide to find out what you may be entitled to.

What does the Government say?

A spokesperson for the Department for Work and Pensions says: "Some homeowners are eligible for help with the interest payments on their mortgage, including some pensioners and people who have lost their jobs.

"The standard interest rate we use is tied to the Bank of England rate, and it will change in line with that rate."

Additional reporting by Helen Saxon.