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Mortgage arrears

Mortgages are classified as priority debt, similar to rent and council tax, with potentially serious consequences for non-payment. So it is important to take urgent action if you fall behind with payments to your mortgage lender – usually a bank or building society.

The first thing to do is to contact your lender and explain why you are unable to make the payments.  They are under strict obligations from their regulator to treat all their customers fairly so they must consider a request to change the way you pay and also give you a chance to pay off your arrears. They can only take drastic action when other efforts have failed.   That drastic action could ultimately be to repossess your home so it is important to engage with them and explore compromises.

The rules under which the mortgage lenders must operate are detailed on their regulator’s website and can be found here: www.handbook.fca.org.uk/handbook/MCOB.pdf

These compromises might include ways of lowering your monthly payments, such as by changing from a more expensive endowment mortgage to a repayment mortgage, or extending the term ( number of years ) of your mortgage so you repay the capital ( the initial amount you borrowed) over a longer period of time.  Your mortgage lender may also agree to a “repayment holiday” when they can see that there are specific short-term issues for your financial difficulties and then add those arrears to your mortgage so that you can pay it back over time.

Ahead of agreeing any of these compromise solutions, your mortgage lender will want to know that you have a sustainable recovery plan and will be able to pay them back, so it is important to prepare a budget that lists all of your income and expenditure and is a useful guide as to what you can afford.

Citizens Advice can help with preparing a budget plan. Being able to show that you have spoken with a debt adviser is a good way of demonstrating to your lender that you are serious in seeking a long-term solution.  Remember mortgages are priority payments so you may need to cut back spending on non-essential items in order to ensure that you can meet future payments.

Other solutions to resolving mortgage difficulties may be to see if you have any other sources of finance such as savings, investments, an insurance policy or other assets that you can  turn into cash and use to reduce part of your mortgage and, therefore, allow you to lower your monthly payments.  Help is also available from the government in the form of a loan known as Support for Mortgage Interest from the Department of Work and Pensions that is specifically targeted at people on benefits or pension credits.

The details for this can be found at: www.gov.uk/support-for-mortgage-interest

Comprehensive advice about mortgage arrears is provide by the Money Advice Service:-

www.moneyadviceservice.org.uk/en/articles/mortgage-arrears-if-you-have-problems-paying-your-mortgage

 

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