Mortgage Arrears

Overview

It’s very important to seek advice immediately if you are finding it difficult to pay your mortgage or secured loan. Mortgage arrears will not automatically lead to your home being repossessed. However it is essential to act quickly and take control before mortgage arrears escalate out of control. It is never too early or too late to contact your mortgage provider.

Making Contact

You may feel anxious about approaching them but mortgage problems can often be resolved without going to court. The lender may discuss options, tell you where to go for free advice or alternatively you may be able to tell them you are getting specialist debt or housing advice already. If you find the person you first speak to isn’t very helpful or approachable, ask to speak to someone else. It is still important to make contact, even if you don't know what to do about your arrears.

Making Payments

Even if you have other debts, it is important to pay as much as you can towards your mortgage. You may not have made payments for a while, or may not be able to pay the full contractual amount, but you should start paying as much as you can afford. It's helpful to try and prevent the arrears increasing any further and it will also show the lender that you are serious about dealing with the situation. The more your mortgage arrears escalate, the more likely it is that your home is at risk. Paying your mortgage should be a top priority.

Budgeting

If you want to avoid repossession of your home, you need to look at ways to stop your arrears from increasing further and how you can afford future payments and paying off the arrears that have accrued.

You may want to consider the following:

  • cutting back on non-essential expenditure
  • looking at ways to increase income, for example by working extra hours
  • check if you can claim support for mortgage interest. These payments help towards the interest of your mortgage and not the capital.
  • consider taking in a lodger if you have a spare room
  • look at options of switching to a cheaper/flexible mortgage
  • reducing insurance costs
  • You may be eligible to claim benefits if you're unemployed, have a low income or can't work due to health problems.You may be eligible for tax credits if you have children or are working and have a low income.

You might want to check out www.benefit-calculator.turn2us.org.uk or Gov Tax Credits Calculator to work out any entitlement.

Mortgage arrears and other debts may have accrued as a result of a relationship breakdown or another life changing event, and you may need extra advice and support. Dealing with your lender, other creditors, and applying for benefits can sometimes be more difficult in these situations. For example, your former partner may be named on the mortgage, and they would need to provide information to the lender before another payment agreement can be made.

If you seek advice from a specialist debt adviser they can help you with your budget and options, looking at your income, expenditure and your priority and non-priority debt. The adviser may also assist you in negotiating and persuading your lender to change the agreement. It is most important to keep to any agreement you make, if you don't keep to any arrangements made, the more difficult it will be to renegotiate with your lender again in the future.

If a new agreement has been made but you are struggling it is important to seek further help and advice.

Options

Voluntary Repossession

Handing back the keys is seen as a last resort and advice from a housing or debt specialist should always be sought. Debt is likely to increase as you must keep paying the mortgage until the home is sold. After the home has been sold, if there is any mortgage shortfall you are responsible for repaying that shortfall. If you become homeless and subsequently make an application to the local housing authority, they may decide that because of your actions you made yourself intentionally homeless.

Paying interest only

This is where your lender accepts a monthly payment towards your repayment mortgage, which covers the interest only. This may be accepted as a temporary solution. If arrears have accrued your lender may ask you to pay something each month, towards clearing them.

Capitalising the arrears

This is sometimes an option on first mortgage arrears, and usually where the value of your home is more than the mortgage. The arrears are added to the mortgage and as a result, the monthly payments will go up. Repayment of the arrears is therefore spread over the remaining term of the mortgage.

Time orders

Making an application to the court for a time order is sometimes an option for certain mortgages and secured loans. A time order is particularly beneficial where you have a secured debt with a high rate of interest, and large monthly instalments that you cannot afford. The court has the power to reduce monthly payments, extend the term of the agreement, and can change the interest rate.

Selling the home

Another option if you can't find another solution or if you want to leave anyway, is to sell your home, find something more affordable.

Repayment arrangement

If you can afford to pay your monthly mortgage instalment, but have arrears, you may be able to negotiate an amount to pay each month towards the arrears. Using your personal budget you (or with the help of your adviser) can work out if you can afford your normal payment, and a realistic amount you can make towards the arrears.

Court Action

If you have fallen into arrears with your payments, you do need to take steps to avoid court action and repossession of your home. If you've received a letter from your mortgage lender threatening court action for repossession or a letter from the court giving you a hearing date it is important to seek specialist advice. Don't wait until your mortgage arrears become unmanageable. If you negotiate at an early stage, the more likely it is that the lender will be open to considering other options. If your case does go to court, your lender will charge for their legal costs, which are usually added to your mortgage.

Mortgage pre-action protocol

The pre-action protocol is designed to ensure that lenders and borrowers act fairly and reasonably with each other and, if possible, reach an agreement so that court action for mortgage arrears is not necessary. If issues are not resolved and a possession hearing goes ahead, the court should take the protocol into account and how the lender and borrower have behaved, before deciding what action to take.

The protocol applies to residential first and second mortgages.

When the case goes to court, the lender must complete a checklist to confirm that they have followed the protocol. If they haven’t, they must provide the court with clear reasons why they haven't. At the court hearing, a copy of the checklist is given to the District Judge, and a copy to you. You can obtain a copy of the mortgage pre-action protocol from www.justice.gov.uk.

Complaints

If you need to make a complaint because you feel you have been treated unfairly by your lender, you should follow your lender’s complaints procedure first. A final response should be received from your lender within 8 weeks. If you are not satisfied with the outcome, you could escalate the case to the Financial Ombudsman Service (FOS). Further information about raising a complaint with FOS, can be found on their website www.financial-ombudsman.org.uk or telephoning their helpline on 0800 023 4567.