Tips on dealing with mortgage arrears
If you are having difficulty meeting your mortgage payments, or have got behind with the payments, then it is important to speak to your lender as soon as possible. Lenders can offer many ways of helping you and are more likely to be responsive if you make them aware of the situation rather than just ignoring it. Additionally, the Financial Services Authority (which regulates the majority of lenders) sets out certain rules that mortgage providers must follow when dealing with mortgage arrears.
Lenders can offer many ways of helping you
Depending on who your mortgage provider is, you may be able to access help from them in one of the following ways:
Interest only payments
This is a temporary arrangement for repayment mortgages. If you are in arrears, it will include repayment of the arrears as well as the interest. It means that you will not be reducing the capital owed during the arrangement, but it will reduce your monthly payments.
Extend the term of the mortgage
This will entail paying your mortgage for a longer period, but the payments will reduce accordingly. With an endowment mortgage this scheme can be quite complex as the term of the mortgage will be tied in to an endowment policy. Therefore, you will have to speak to your lender to find out how this would work in practice.
Switch your mortgage from endowment to repayment
If your mortgage is an endowment type you may find it cheaper to change to a repayment mortgage. This will also enable you to cash in your endowment policy to release extra funds. However, it is important to balance this advantage against any potential losses due to early redemption of the policy.
A payment holiday
Some lenders will agree to this in exceptional circumstances such as unemployment, but it will mean that you build up arrears on the mortgage. Therefore, once your circumstances change you will have to make arrangements to repay the arrears e.g. by either extending the term of the mortgage or by increasing your monthly payments.
Include any arrears with your mortgage payments
If your mortgage is a first mortgage and the value of the property exceeds the amount owed your lender may allow you to repay any arrears over the period of the mortgage. This means that your monthly repayments will increase accordingly.
Help – Government assisted schemes
You may find that you qualify for one of the following government assisted schemes:
Support for mortgage interest (SMI)
You could qualify for SMI if you or your partner is in receipt of either: Income Support, Pension Credit, Jobseeker’s Allowance or Employment and Support Allowance. This scheme is operated by the Department for Work and Pensions who make a payment to your lender towards the interest on your mortgage. However, it will usually take a while for your SMI to come through and it may not be sufficient to meet the whole of your mortgage interest payments.
Mortgage rescue scheme
This scheme should be considered as a last resort if, for example, you are at risk of having your home repossessed. Your council will usually administer the scheme so they will decide whether you qualify for assistance. There are two options with this scheme, which are ‘mortgage to shared equity’ and ‘mortgage to rent’.
Under the first option you are granted a low-interest loan. The loan will be used to either reduce the outstanding balance on your first mortgage or pay off a second mortgage. This means that your total monthly repayments will be lower.
With the second option you no longer own your home, but are allowed to live in it as a tenant. Although you will receive 10% less than the market value for the resale of your home, you will be charged 20% less than the typical monthly amount for renting back your property.
If all else fails and you decide that the only way out of your predicament is to sell your home, you may be able to get help with this from your lender. Some lenders operate an ‘assisted voluntary sale scheme’ whereby they allow you to remain in your home until it is sold. In some instances the lender may freeze all charges until your home is sold and may even write off some of the mortgage shortfall if your house sale realises less than the outstanding mortgage.
Although it can be a stressful time when you are struggling with mortgage repayments, it is helpful to bear in mind that your mortgage provider cannot evict you from your property without possession of a court order. Additionally, your lender will have had to take several steps to enable you to repay the arrears before the matter reaches the eviction stage. This is in accordance with the ‘mortgage pre-action protocol’, which states that both lenders and borrowers should act in a fair and reasonable manner in an attempt to avoid court action.