What you should do if you are struggling to pay your mortgage
Reports indicate that there are an increasing number of people who are struggling to pay their mortgage and falling behind, if you happen to be in that situation, what should you do?
“Lenders will find it almost impossible to repossess a property, when the borrower is engaging with them and making an effort to pay!”
If you find yourself in a position where you can’t meet your monthly mortgage payments, it is important not to bury your head in the sand. Help is at hand and there are things you can do to get back on track.
If you’re a homeowner, it’s not the bricks and mortar but the mortgage that keeps the roof over your head. Yet recent interest rate rises mean many are likely to struggle to meet their monthly repayments, leading to arrears and the fear of repossession. This guide shows you how to protect your home loan if you’re finding it hard to meet your monthly repayments, including information on what help is available?
The first step is to take a realistic approach and establish if there is anything you can change, in order for you to be able to pay. That could be ruthlessly cutting down your overheads, eliminating every single unnecessary expense, from tv subscriptions to mobile phone contracts and gym membership. If the figures still do not add up, is there any way that you could supplement this with addition income, be that extra work at the weekend or even renting a room.
If the figures still do not stack up, then you begin to prioritise expenses, I would assume that first and foremost, the most important payment is your mortgage. In the first instance, here are a list of your initial courses of action:
- Talk to an experienced adviser
- Talk to your lender
- How to make an offer to the lender
- Check if you have insurance
- Check if you can reduce your costs
- Check if you can increase your income
- Schemes that help with mortgage payments
- Selling your home to pay your debts
Talk to an experienced adviser
There are many free debt advisory services, including the Citizens Advice Bureau, laws and policies do change frequently and a professional adviser will be familiar with the latest updates, which can often make a difference to your position.
Talk to your lender
If you’re struggling to pay your mortgage, you should contact your lender as soon as possible. They’ll normally write to you within 15 days of a missed payment, but you shouldn’t wait until then to speak to them. It is much better to speak to them before you reach the point where you will miss all or part of your next payment, the idea being that you should demonstrate that you have done everything possible in an effort to avoid falling behind.
What your lender might offer you
Lenders have to treat you fairly and consider any request you make to change the way you pay your mortgage.
Depending on your circumstances, your lender might offer you the option to:
- change when you pay – you might be able to take a break from paying your mortgage
- repay what you owe at a later date – you could arrange to have what you owe added to the capital outstanding on the mortgage. This is called ‘capitalising the arrears’
- reduce the amount you pay for a short period of time – you might be able to pay less towards your mortgage for the next few months
- repay your mortgage over a longer period – this is called extending the mortgage term
- reduce your monthly interest payments – you might be able to negotiate a lower interest rate if you have equity in your property
- change to interest-only payments – this is where you only pay off the interest on what you borrow each month
- switch to a cheaper mortgage – you might be able to reduce your payments by changing to a fixed-rate mortgage.
If you took out your mortgage from 31 October 2004 onwards, your mortgage lender has to follow the Financial Conduct Authority (FCA) rules when dealing with mortgage arrears.
The rules say that your mortgage lender must treat you fairly and give you a reasonable chance to make arrangements to pay off the arrears, if you’re able to. It must consider any reasonable request from you to change when or how you pay your mortgage. If your mortgage was taken out before October 2004 a lender has to abide by the code that existed then.
At this point, you made be in the unfortunate position, where you may be at risk of missing payments, which will adversely affect your credit file for up to six years. The key here is to ensure that you really have no other option, if there is absolutely no way that you can avoid this, then you will have no other option, but to resort to damage limitation.
In this event, the first priority will be your mortgage, if you do not pay anything else, is there a realistic prospect of you meeting your mortgage payments? If this is not that case, then you will have no other option but to consider selling your home as quickly as possible. if this is the case, you need to ensure that there is minimal damage to your credit file in the meantime, if possible, which will invariably be helped by communicating with all your creditors.
Many of you who have bought within the last year or two, may be surprised to find that in real terms, you may already be in negative equity, (where the value of your home after selling and paying fees, is less than the balance that you owe) in this instance, you will need the permission of your lender to sell. Most lenders will work with you, because they will invariably prefer a small shortfall now, rather than an increasing loss plus legal costs along with everything that the repossession process involves.
“Lenders do not want to repossess, they will always choose to work with a cooperative borrower, than have to resort to legal action!”
If you do need to sell, you need to be decisive and realistic, do not make the mistake of over-pricing your home in a vain attempt to salvage your losses, that will only result in your home sitting there on the offer for longer, and meanwhile your debts are increasing and the value of your home may be falling, depending on the state of the market.