Mortgage arrears and problems paying your mortgage

If you fall into mortgage arrears, it's important to arrange a repayment solution with your provider as soon as possible.

Updated

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
Once you fall behind on your mortgage repayments, you’re said to be “in arrears”.

Your mortgage lender will contact you to demand repayment within a few days of this happening, but it’s in your best interests to arrange contact about this as soon as possible.

Your lender would prefer to make arrangements to settle the debt, rather than repossess your property.

However, if you’re not proactive and co-operative when making these arrangements, a repossession could be ordered by the courts.

How to settle your mortgage arrears

Here are some common solutions to settling mortgage arrears:

  • A repayment holiday from your mortgage
  • Switching to an interest-only mortgage
  • Remortgaging with a longer term and lower repayments
  • Using payment protection insurance (PPI) to cover your arrears
  • Debt solutions such as bankruptcy, IVA or debt management plan
  • Selling the property

It’s down to you to propose a solution to your lender. A debt advisor will be able to recommend the best steps to take. By law, the lenders must consider any reasonable suggestions you make to clear your debt before pursuing a repossession from the county courts. They must write an official warning of this legal action before they launch it, and you’ll be able to negotiate a solution at this point too.

Keep a record of all the communications you have with your lender and debt advisor, as these will support your case if it does go to court.

If you stop paying your mortgage and make no efforts to communicate with your lender, this will harm any case you make against your property being repossessed.

Selling the property with mortgage arrears

The lender may agree to suspend your mortgage arrears so you can sell the property, under the following circumstances:

  • You show evidence of steps you’ve taken to sell the property at a realistic price
  • You share details of all offers you receive
  • You show proof that you’ve arranged for the property to be assessed, including an Energy Performance Certificate (EPC)
  • You arrange for your estate agent and conveyancer to contact your lender about the progress of the sale

Can my mortgage lender repossess my home?

If these negotiations fail, the mortgage lenders can take you to court in a bid to repossess your home.

In court, you’ll be able to argue the case for one of the solutions above. If you can show evidence of trying to fix your debts and co-operate with your mortgage lender, this will strengthen your case.

A judge will then sanction one of the following outcomes:

  • A repossession. This means you’ll be evicted from the property, allowing the lender to sell it to repay your mortgage debts.
  • A suspended possession order. This allows you to stay in your home, provided you meet certain conditions. A repossession would be imminent if you broke them.
  • An adjournment. A postponement of the case, allowing both parties to take certain steps before the case is reviewed at a later date.
  • A dismissal. This could occur if the lender doesn’t follow the correct procedure for bringing legal proceedings against you, or if you clear your arrears before the case is brought to court. There’s nothing stopping the lender taking you to court again, but they’d have to do so from the top.

    How long do mortgage arrears stay on a credit file?

    As with any form of debt, a missed repayment will be marked on your credit report.

    Mortgage arrears are considered a “priority debt”, which should be repaid before any other debts. As such, they can cause havoc to your credit score.

    They’ll remain on your credit report for up to six years, significantly harming your chances of being approved for a mortgage in the future.

    The options available to manage your mortgage if you lose your job

    The worst thing you can do when lose your job is fall behind on mortgage repayments. This will obliterate your credit score and cause your mortgage lender to harass you for the money. Ultimately, it could result in your property being repossessed.
    Thankfully, there are plenty of more appealing solutions to this problem.

    The first step to take is to inform your mortgage lender as soon as possible. Together, you can compromise on the most suitable way to repay your debt.

    Under FCA regulations, it will have to consider any reasonable proposals for repaying your debt. Here are some ideas to help you through this rough financial patch.

    Invest in income protection insurance

    There are several insurance products designed to cover your mortgage payments in case you lose your job.

    • Mortgage payment protection insurance (MPPI). This product will cover the cost of your mortgage payments for a limited amount of time. You can choose products that cover unemployment, illness and injury, or both.
    • Income protection insurance. This product covers all your financial commitments for a set amount of time. The payout is bigger than MPPI, but the premiums tend to be higher too.
    • Critical illness insurance. This product will pay out a lump sum if you lose your job due to illness or injury.
    • Payment protection insurance (PPI). This product is similar to MPPI, although it’s often sold as an add-on to a mortgage, rather than a standalone product.

    With each of these products, your monthly premiums will be based on the size of your mortgage and a number of factors that help the insurer determine your likelihood of making a claim. These include your age, occupation and the results of a general health assessment.

    Claim any benefits you’re entitled to

    If you lose your job, you may be entitled to a number of government benefits, including Council Tax Reduction, Working Tax Credits, Jobseeker’s Allowance or Universal Credit.

    As your income has dropped, you’ll probably be entitled to pay less tax and could even be eligible for a tax refund. Claim these as soon as possible, as they could help ease your mortgage payment problems.

    Amending your mortgage when you lose your job

    Ultimately, your mortgage lender doesn’t want to see you running into huge arrears and be forced to repossess your house. In many cases, it would prefer to grant you one of these solutions.

    • A mortgage payment holiday. Some mortgage products allow you to take a short break on your monthly repayments. The maximum length of a payment holiday differs between lenders, but can be as high as 12 months. Interest will continue to accrue on your outstanding balance, causing your monthly repayments to rise after your payment holiday. Nevertheless, it will give you time to search for a new job without the financial pressure of paying your mortgage.
    • Extending your mortgage term. If you still have some income or savings to cover your mortgage, you might want to consider applying to extend your mortgage term. This will lower your monthly repayments, although it’ll take longer to become mortgage-free and you’ll pay more interest overall.
    • Switch to an interest-only mortgage. This will significantly lower your mortgage repayments, as you’ll only be paying interest. However, you’ll have to stump up a huge lump sum to pay off the capital at the end of the term. You’ll have to show a solid strategy for raising the money in order to be approved for a switch to an interest-only mortgage.
    • Debt solutions such as bankruptcy, IVA or a debt management plan. These solutions tend to leave mortgage lenders worse off, plus you’ll struggle to apply for any financial products in the short- to medium-term future. Consider all other options before this.
    • Sell the house. The most inconvenient option, but potentially the most financially beneficial. Your lender may agree to suspend arrears if you can provide proof you’re taking active steps to sell the property at a reasonable price.

    If you’re facing long-term money problems, you’ll need a long-term solution. Our guide on mortgage arrears has some ideas, but it may prove useful to get in touch with a debt adviser.

    How to avoid property repossession

    In order to repossess your property, your lender will have to obtain the right to do so through the county court.

    It’ll send you a letter to ask for repayment of your mortgage arrears, then another warning you of legal proceedings before it can take you to court. You’ll have the right to negotiate a solution for repayment of your debt during this time. A lender has the right to refuse your proposals and take you to court anyway.

    If it comes to this, your best defence is to keep a record of all of your attempts to create a reasonable compromise with your lender. If you can do this, the courts may adjourn the case or issue a suspended repossession order, giving you more time to pay off your arrears.

    If your property is repossessed, you’ll be evicted from it, so that the lender is able to sell the property and reclaim its losses.

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