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Expert Guide to Handling Mortgage Arrears

The Expert Guide to Handling Mortgage Arrears

Are you feeling overwhelmed by the weight of mortgage arrears? You're not alone.

When you fall behind on mortgage payments, it’s more than just a financial hiccup—it’s a red flag signalling potential risks like repossession and profound credit implications. Your home isn’t just a place to live; it’s a significant financial investment, and maintaining your mortgage payments is crucial to securing your ownership.

Arrears mean you’ve accumulated overdue payments, which can lead to dire consequences if not addressed promptly. Ignoring the issue won’t make it vanish; instead, it can exacerbate the situation, impacting your creditworthiness and ability to secure future loans. With today’s mortgage interest rates and financial uncertainties, more homeowners are grappling with this challenge in today’s economic climate.

5 Steps to Handle Mortgage Arrears

Suppose you still need to fall into arrears but foresee difficulties, bitwise to prepare. Our Struggling to Pay guide can provide preemptive strategies and insights to manage potential payment hurdles before they escalate.

Let’s delve deeper into the urgent steps you must take:

Step 1: Contact your mortgage lender immediately

The moment you miss a payment, contact your lender without delay. It is crucial to discuss your situation and explore available support options. Your lender may offer solutions like reduced repayments, payment breaks, interest-only payment periods, or extending your mortgage term. While these options provide short-term relief, they may affect your overall mortgage costs.

Are you concerned about your credit? Contacting your lender for support will not harm your credit file initially, but agreements like payment arrangements or arrears may reflect on your credit report, impacting future borrowing. Understanding these nuances is essential.

Inquire about the support options available from your lender. The assistance they can provide depends on your unique financial circumstances and ability to make repayments, which may require providing details of your income and expenses for assessment. Lenders commonly refer to this personalised assistance as ‘tailored support,’ which may encompass:

  • Reducing your monthly repayments for a limited period.
  • Taking a temporary break from repayments, resulting in zero payments for a specific duration.
  • Temporarily switching to an interest-only mortgage, where you pay only the accruing interest instead of the principal amount. This can significantly reduce your monthly payment, especially as you approach the end of your mortgage term.
  • Extending the term of your mortgage, spreading the debt over a more extended period and reducing monthly repayment amounts.

While these options offer immediate relief, it’s important to note that they may increase the overall cost of your mortgage in the long run. As soon as feasible, aim to revert to your regular repayment schedule.

Concerned about your credit score due to accepting mortgage support? Simply contacting your lender to discuss your situation will be okay with your credit file. However, agreeing to mortgage support may affect your credit profile. Your lender should explain how this support will be reflected on your credit file:

  • An ‘arrangement’ marker may be added to indicate a short-term support agreement, such as interest-only payments or payment reduction. This marker is visible to other lenders but removed when the arrangement ends.
  • Arrears may appear if you deviate from your contractual monthly repayments, but these can be resolved by repayment or, in some cases, added to your mortgage balance (capitalisation).

It’s important to note that credit impacts from arrangements or arrears can persist for up to six years but should diminish over time. The effect on future borrowing depends on your overall credit history and the lender’s policies you approach for credit.

If you find yourself in arrears, having an arrangement with your lender provides transparency to other lenders about your situation, which can be more beneficial than leaving them unaware of the circumstances leading to arrears.

Step 2: Utilise available insurance

If you have mortgage insurance like MPPI or accident, sickness, and unemployment coverage, it’s time to use it. Contact your insurer ASAP, especially if you struggle to cover your mortgage due to job loss or illness. They may require proof of your situation, such as job search efforts or a doctor’s note.

The payout amount for MPPI was set when you signed up, so review your paperwork if you need clarification. Typically, MPPI covers your mortgage for one to two years, but remember, it might take a few weeks before you start receiving payments.

Not sure what kind of insurance you have? Here’s a quick refresher:

  • MPPI: This policy temporarily covers mortgage payments during job loss, illness, or sometimes unemployment due to redundancy. It will only pay out if you resign with another job lined up or are still working but struggling.
  • Accident, sickness, and unemployment policies: These policies pay a pre-agreed amount based on your earnings, not your mortgage, for up to two years.
  • Income protection insurance (IP): Provides a pre-agreed income amount in case of accident or sickness until you return to work or retire.
  • Remember, insuring your mortgage payments is optional, so you might not have this coverage.

Step 3: Review finances and explore benefits

Exploring alternative options when your mortgage lender’s support falls short is crucial for maintaining financial stability. Even if your current support temporarily covers your payments, proactive planning is necessary to prevent future arrears.

Begin by creating and maintaining a detailed budget. This practice isn’t exclusive to those facing financial challenges—it benefits everyone. 

If you find yourself in mortgage arrears, it’s essential to regularly reassess your budget to ensure it aligns with your current financial situation. Additionally, take the time to review your eligibility for various benefits. Job loss is a common trigger for mortgage difficulties, so promptly signing on at your local Jobcentre can provide crucial financial assistance.

Many individuals mistakenly assume they are ineligible for benefits. However, numerous programs cater to moderate-income individuals, especially those with dependents or high rental costs.

One such form of support is the Support for Mortgage Interest (SMI) program. This initiative aids with mortgage interest payments and is accessible to individuals receiving specific benefits such as Income Support, JSA, ESA, Universal Credit, or Pension Credit.

It’s important to understand that SMI is provided as a loan, with repayment typically required upon the sale or transfer of your property. Additionally, returning to work often halts SMI payments. In such cases, consider mortgage interest run-on (MIRO) as a means to ease the financial transition.

For residents in Scotland, additional forms of mortgage support may be available, providing further avenues to manage mortgage-related financial pressures.

Step 4: Seek debt counseling

Navigating mortgage arrears often involves managing other debts as well. Nonprofit debt counselling agencies like Citizens Advice, StepChange Debt Charity, or National Debtline can offer invaluable assistance. They can help negotiate with lenders, provide legal support, and create structured debt management plans to avoid repossession.

Managing other repayments and debts can be challenging if you need help with mortgage arrears. In such situations, it is essential to take a comprehensive approach to handling all your debts and prioritising them effectively. Our Debt Help guide provides a detailed checklist to assist you.

Engaging with a nonprofit debt counselling agency can significantly strengthen your position, especially if you’re facing difficulties with your mortgage lender due to arrears. Should your lender escalate to court proceedings for home repossession, demonstrating proactive efforts to address the situation can be crucial in preventing a repossession order.

Here are some reputable debt help agencies you can turn to for assistance:

Citizens Advice

Offers entire debt and consumer advice services. Many offices are staffed with specialists who deal with debt, including repossession issues and negotiations with creditors. Locate your nearest Citizens Advice centre or engage in an online chat with an advisor.

  • Phone: 03444 111 444 (option 3)
  • Operating hours vary by location, so check with your local branch for details. Closed on bank holidays.
  • Web chat is available Monday to Friday, 8 am to 7 pm (excluding bank holidays)

Advice NI provides similar services for individuals in Northern Ireland.

StepChange Debt Charity

Provides comprehensive debt help services across the UK, including an online debt advice tool for budgeting and personalised action plans.

  • Phone: 0800 138 1111
  • Operating hours: Monday to Friday, 8 am to 8 pm; Saturday, 8 am to 4 pm (closed on Sundays and bank holidays

 

National Debtline

Offers free advice and resources to assist people in managing their debts through phone support, online resources, and webchat services.

  • Phone: 0808 808 4000
  • Operating hours: Monday to Friday, 9 am to 8 pm; Saturday, 9.30 am to 1 pm

Specific strategies apply to repossession issues in situations involving mental health challenges. Our free Mental Health & Debt Help booklet guides managing debts during stressful times, navigating interactions with financial institutions, and accessing free one-to-one counselling services. It also includes tailored advice for individuals dealing with conditions like bipolar disorder and depression.

Step 5: Understand repossession rights

Knowing your rights regarding repossession timelines, lender obligations, and legal support options is crucial. Engaging with lenders, attending court hearings if necessary, and seeking legal advice can mitigate repossession risks and protect your homeownership.

Suppose you consistently need the safety net of mortgage insurance, savings, or eligibility for state assistance to meet your mortgage payments. In that case, it’s crucial to understand your rights regarding repossession.

What does repossession entail?

A mortgage is a loan secured against your home. If you are unable to make repayments, the lender has the legal right to take possession of your home. However, lenders aren’t eager to repossess homes; it’s typically a last resort for them. Therefore, don’t let fear prevent you from contacting your lender for assistance.

Major lenders agree not to initiate repossession proceedings until at least 12 months after the first missed payment. Most lenders prefer to work with borrowers to find solutions rather than repossessing homes outright.

If arrears accumulate and you don’t address the situation, the lender may eventually move forward with repossession. They might sell your home quickly at auction, which may not fetch the best price. You may still be responsible for the shortfall if the sale proceeds don’t cover your outstanding debt.

Considering repossession is inevitable…

Think about selling the home yourself as a proactive measure. This approach may yield a better sale price, allow you to negotiate more effectively, leave you with some funds, and prevent a repossession record on your credit history, which could severely impact future borrowing opportunities.

We have a Guide to Selling Your Home that you can refer to for more information.

Final steps to avoid repossession:

  1. Request modifications to your payment plan from your lender.
  2. Maintain active negotiations with your lender to prevent repossession proceedings.
  3. Seek advice from debt counsellors to understand your options and negotiate effectively with your lender.

In the unfortunate event that repossession proceedings begin:

• Seek free legal assistance immediately, as repossession is a legal matter.

• Attend all court hearings to demonstrate your commitment to resolving the situation.

• Understand your rights regarding any mortgage shortfall and seek further information from resources like the National Debtline factsheet.

Taking proactive steps, seeking appropriate support, and understanding your rights are paramount in effectively navigating mortgage arrears. If you need personalised mortgage advice or assistance, our expert team is here to provide tailored guidance and support every step of the way.

Ready to make informed mortgage decisions? Contact us for expert guidance. Our experienced team of mortgage specialists is here to assist you every step of the way. Whether you’re a first-time homebuyer, home mover or looking to refinance, we can place you with the right experts to provide personalized advice tailored to your needs.

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