Coping with Mortgage Arrears

If you can’t meet your mortgage repayments, or you’re worried you might fall behind, it’s important to contact your lender as soon as possible.  Lenders have procedures for tackling payment difficulties and they’ll try to help.  You can also get free independent advice from other organisations.

Contact your lender and agree a plan

Mortgage lenders are keen to help their customers sort out any payment difficulties.  Also, the law says they must treat you fairly and take your circumstances into account.  They may be able to come to a payment arrangement with you.

How can your Lender help?

Depending on your payment history and whether your difficulties are likely to be long or short term, your lender might agree to:

  • Reduce your payments for a set period
  • Charge you interest only for a while, if you’ve got a repayment mortgage (usually you pay capital and interest)
  • Give you a ‘payment holiday’ (a temporary break from making any repayments)
  • Extend your mortgage term to reduce your payments.

How can you clear your arrears?

If you’ve already fallen behind, your lender will suggest a way to pay off the arrears gradually, alongside your usual payments.  If you can’t meet the extra payments, you may be able to delay them for a while or add them to your loan.  Again, it depends on your track record.

Helpful hints to help your situation

  • Pay as much as you can manage every month.  Keeping up regular payments (even if they vary) shows that you’re committed.  Your lender’s more likely to treat you sympathetically and you’ll minimise the arrears charges too.
  • Don’t just ignore any payment problems.  Mortgages are ‘priority debts’, which you should pay off first as your lender could repossess your home and sell it to get their money.
  • Work out how much you can afford. Your lender can help, but you may prefer to do this yourself.  A good starting point is to write down all your income and outgoings (apart from the mortgage) and see what you’ve got left. The Financial Services Authority (FSA) has an online budget calculator you can use which should help you do this
  • You are also encouraged to seek independent money advice from a recognised free to client provider who will help you develop a realistic income and expenditure budget (see useful links below).
  • Check if you have any ‘mortgage payment protection insurance’. It is amazing how many people forget they have this cover in place. The insurance payments may not start straight away – so contact your insurer as soon as possible.
  • Make sure you are claiming all the benefits you are entitled to, as Working Tax Credit, Child Tax Credit or Council Tax Benefit.  They can make a real difference to your income and help with your mortgage payments.

What happens if your Lender does repossess your home?

If your lender takes possession of your home, they’ll sell it to get their money back; the lender has a duty to achieve the best possible price once the home has been repossessed. 

If it sells for less than you owe them, they may want you to pay back the rest of the debt (the ‘mortgage shortfall’).  This is no longer a ‘priority debt’, which means your lender can’t claim any more of your possessions or assets, but they can try to recover the debt for a long time – up to 12 years.

If you feel this may be the situation you face, read our ‘useful link’ section. These are the people you can get advice from about what to do next.

Useful links

You can get free independent advice about mortgage difficulties from several organisations.  They’ll help you work out what you can realistically afford.

  • Citizens Advice Bureau (CAB): The Cab offers free, confidential advice face-to-face or by phone.  Most CAB bureaux also offer home visits and some give email advice, visit www.adviceguide.org.uk to get details of your local office and free factsheets.
  • National Debtline: National Debtline is a free, confidential service that gives independent advice about coping with debt.  You can get information online at www.nationaldebtline.co.uk or call the helpline on 0808 808 4000 (9.00am to 9.00pm Monday to Friday, 9.30am to 1.00pm Saturday).  Borrowers can also email queries and request free factsheets.
  • Consumer Credit Counseling Service (CCCS): CCCS offers free counseling on personal budgeting and advice about using credit.  You can call their helpline free on 0800 138 1111 (8.00am to 8.00pm Monday to Friday) or online counseling and information at www.cccs.co.uk
  • Community Legal Advice: Community Legal Advice offers free information about legal problems and can put you in touch with local advisors.  You can get information online or call the helpline on 0845 345 4345 (9.00am to 5.00pm Monday to Friday).
  • Shelter: Offers help with housing, mortgage, debt and welfare benefit problems.  Call free on 0800 800 4444 or for Mortgage Debt Advice call 0300 33 00 515 or visit www.shelter.org.uk/adviceonline
  • Payplan: Provides advice on debts including mortgage debts including advice on assisted voluntary sales.  Call 0800 917 7823 or visit www.payplan.com
  • National Homelessness Advice Service (NHAS): If you are worried you may loose your home you can obtain information and guidance on line at www.nhas.org.uk

Other options

There are a number of formal insolvency procedures that maybe available to you. These could be particularly relevant if you have significant debts in addition to your mortgage arrears. The main options to consider are: -

  • Bankruptcy – A formal procedure where an Administrator is appointed to run your financial affairs, and return any monies outstanding to your creditors, this can involve the sale of your home, and attachment of earning order, and closure of all bank accounts.
  • Individual Voluntary Arrangement – This is typically a 5 year plan that is put in place to maximize returns to your creditors, but at a fixed monthly repayment with part of your debts written-off, however after the 4th year your home will be re-valued and you may need to remortgage and any extra monies by doing so will be paid to your creditors.
  • Debt Management Plan – These are informal payment arrangements whereby you will generally repay the full total of the debt owed but generally over an extended period of time.

All formal insolvency procedures will have a big impact both on you ability to borrow money in the future and potentially on the assets you own. Therefore it is important to get some professional advice before taking any action, to make sure you understand everything that is involved.

Source: White Horse Mortgage Services

Data is provided by lovemoney.com Limited who are an appointed representative of lovemoney.com Financial Services Limited, authorised and regulated by the Financial Services Authority.

Advice is provided by MoneyQuest Mortgage Brokers Limited who are an appointed representative of Legal & General Partnership Services Limited, which is authorised and regulated by the Financial Services Authority for advising on and arranging mortgages and insurance. Lovemoney.com Limited and MoneyQuest Mortgage Brokers Limited are not part of BGL Group Limited of which BISL Limited forms part.