Falling behind on mortgage payments can turn out to be a nasty experience. But this happens to many borrowers, and it may be of some consolation to say that you are not alone. Here’s the good news, there are steps you can take to rectify the situation. In this article, we'll discuss what to do if you're unable to make your next mortgage payment or if you have already missed out on your repayments.
What happens if I miss my mortgage payment?
Missing a mortgage payment does not lead to immediate home loss. Lenders will first seek alternatives before repossession.
When you miss a payment, your lender will usually notify you after a period of 15 days. If you haven’t made the payment by this time, your missed payment will show up as a payment in arrears. This means that your financial priorities should be focussed on settling this payment before any other debts.
Ideally you should contact your lender and work with them to find repayment options before you miss a payment. If you have already missed a payment, you can still talk to your lender to make a plan to cover outstanding repayments.
Keep in mind that failure to make mortgage repayments repeatedly could lead to your house being repossessed.
How to pay off your mortgage arrears
- Assess your financial situation
As a first step, it is always good to take a detailed look at your current financial situation. List all your income sources and expenses. Discuss with your lender how much you can afford to pay.
At this stage, identify areas where you can decrease spending to free up funds that assist with your mortgage repayments.
- Contact your lender immediately
As soon as you realise you're unable to make your mortgage payments or if you have missed a payment, it would be wise to contact your lender. Discuss your situation openly and inquire about any repayment options they might offer. You should also notify them of any plans you may have to improve your source of income. Getting a new job, getting benefits, investment, insurance, etc.
- Paying back arrears
Your lender may provide you with options on how to repay the arrears. Consider the following possible solutions:
- Payback as instalments: If your future finances allow it, you can arrange to pay back the arrears as an instalment along with your monthly mortgage repayments. If you have a missing payment, such as £500, they may give you the option to pay it back in five £100 instalments within a period of five months along with your regular mortgage payments.
- Capitalising your arrears: This method is possible if your house is valued more than your current mortgage amount. You can add your outstanding arrears to the remaining mortgage balance of your home and repay it over the course of your mortgage. However, the downside is that as you increase your debt, you may end up paying more interest.
What if you can’t carry out your monthly repayments?
- Check if you can claim insurance
Mortgage protection insurance, income protection insurance or critical illness covers you for loss of income due to illness, injury or redundancy. If you lost your income due to any of these reasons, you are entitled to make a claim. However, be mindful that your claim may have conditional clauses. Check with your insurer that the policy cover is in line with your requirement.
- Explore repayment options
Lenders may offer various options to help you continue payments based on your circumstances:
- Payment holiday: Some lenders may offer a temporary break from payments if you are experiencing short-term financial difficulties. This can be a break from paying the full amount or a part of it. You may also want to keep in mind that at the end of the payment holiday, your monthly payments could increase due to the inclusion of the amounts unpaid.
- Interest-only payments: You could request to switch to interest-only payments for a set period of time to reduce your monthly outgoings until you are back on track. Here again, the capital component will accumulate, which you will have to pay at the end of the term.
- Term extension: This is when you extend the term of your mortgage. For example, from a 20-year term to a 25-year term. The longer time lowers your monthly payments, making them more manageable.
Getting help when falling behind mortgage payments
If you need free advice - If you're struggling to navigate the situation, consider seeking advice from a professional. Organisations such as Citizens Advice, the National Debtline, or StepChange Debt Charity can provide free, impartial advice and guidance on managing debt and avoiding repossession.
Government schemes - The UK government offers several schemes to help homeowners who are struggling with mortgage payments:
- Support for Mortgage Interest (SMI): SMI is a loan that helps cover the interest on your mortgage and loans you’ve taken to repair and improve your home. Eligibility criteria apply, and the loan must be repaid with interest when you sell your home or transfer ownership.
- Housing Loss Prevention Advice Service (HLPAS): This service applies to England and Wales. It offers free legal advice and representation in court for anyone facing possession proceedings or the risk of losing their home.
- Home Owner’s Support Fund: This is only available in Scotland. It includes two schemes
- Mortgage to Shared Equity - the Scottish Government buys a stake in your property so you can reduce any secured loans you have.
- Mortgage to Rent - this allows a social landlord to buy your home, and you'll continue to live there as a tenant.
- Help to Stay: Applicable in Wales. This scheme is an equity share loan, which means that a lender will give you a loan in return for a share of any profits when you sell the home or repay the loan. The loan is interest-free for the first five years, and you will not have to make any payments until the end of this period.This allows you to lower your repayments and resolve financial issues during this time. Eligibility criteria apply.
What you need to know about repossession
If you miss mortgage payments in the UK, there are rules your lender must follow. Most lenders do not repossess your property unless you’ve missed at least 3 payments. Repossession is generally considered a last resort by lenders, and it occurs when you have significant arrears and no viable repayment plan. Lenders must treat you fairly and first consider any repayment options you can follow before resorting to repossession.
Before court action, your lender must inform you of the facts and give you:
- A list of missed payments
- Outstanding mortgage debt
- Total amount of arrears and charges
It's important to respond promptly to any correspondence from your lender and attend court hearings if your case goes to court.
Seek legal advice and understand your options early to help navigate the situation and potentially prevent losing your home.
Conclusion
Falling behind on mortgage payments can be a stressful experience, but there are multiple avenues you can explore to save your home. The key is to act promptly and communicate with your lender or professionals who can help with debt management. By taking the right steps, you can work towards a resolution and protect your home. Remember, you are not alone, and support is available to help you through this challenging time.
