What to Do if You Can’t Pay Your Mortgage?
The cost-of-living crisis is in full flow and the Bank of England is warning of the longest recession on record. When recessions hit, household budgets become tighter, and many people are faced with uncertainty around mortgage payments.
If you are experiencing difficulties paying your mortgage or are concerned that problems may arise in the next few years, this guide will help you understand what you need to do.
Debt can be a crippling experience and having options to help you regain control of your financial situation can be invaluable. Let’s look at what to do if you can’t make your mortgage payments.
What Are Mortgage Arrears?
Mortgage arrears occur when you miss a payment on your mortgage. A single missed payment will put you into mortgage arrears, although a single missed payment may be easy to remedy and get your mortgage up to date again.
Missing a payment on your mortgage will be noted on your credit record, but missed payments are blemishes rather than longstanding damaging marks. We are all human and missing a payment of some sort is likely to happen for everyone during their lifetime.
Three or more missed payments and your mortgage account will be put into default. A default is registered automatically by most lenders and will be marked on your credit record.
When a default is registered on your credit score, you will find it has more impact on your score and ability to obtain credit. Defaults indicate to lenders you are struggling to manage your income and expenditure.
Beyond registering a default, a lender will begin the repossession process. This is a formal legal process and lenders will have strict rules to follow when applying for a repossession. The repossession process is treated differently by lenders, and some are quick to start formal proceedings while other lenders are slower to act. A repossession is extremely serious, and lenders will try to find a resolution before it reaches this stage.
What Happens if You Miss a Mortgage Payment?
If you miss a mortgage payment, you should do a number of actions. First and foremost, review your finances. Was this a simple error and you forgot to move funds around or are you struggling to make ends meet?
If it is an error, call your lender and advise that you have the funds to make the payment. Some lenders will ask you make the payment manually over the phone, and others will ask you to wait for the direct debit to be reattempted.
With a direct debit a missed payment will be called for a second time. It is only after the second attempt of a direct debit fails you will have the payment classed as officially missed.
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Steps to Take if You Can’t Pay Your Mortgage
If your missed payment is caused by financial difficulty rather than a mistake, you should look at the steps below to ascertain what you can do to get back on track.
Look at Your Finances
Most guides online will advise you to call your lender in the first instance, which is good advice in general, but in practice calling a lender with no understanding of your income or expenditure will make the task more difficult.
First take the time to look at your accounts. Look at any expenditure you can cut back on and then calculate if simple cutbacks can help you get back up to date with your mortgage. For example, while we all like entertainment subscriptions, they are luxuries compared to having a roof over your head and you should be prioritising a mortgage payment over almost any other expenditure.
You may find after restructuring your finances you don’t have a shortfall and can make the mortgage payment – alleviating any need for the following steps. Ordinarily a lender will ask you to complete a budget over the phone with them, at the very least you should have details of your income and expenditure to hand when on the phone.
Talk to Your Mortgage Lender
Once you have your financial information, call your mortgage lender and advise them that you are having difficulty making your mortgage payments. This isn’t something to be ashamed about, lenders are very aware that people run into difficulties and they have different ways to help you.
On the call the lender will probably:
- Ask if this is a one off or whether you may struggle again in future
- Complete a budget with you to understand your income and expenditure
- Outline any options they have to help you specifically
Is a Payment Holiday Available?
In most cases, a lender will look to either help you catch up on your mortgage payments in a responsible way or offer a payment holiday. Payment holidays are different between lenders, but most payment holidays allow you to take a few months to get your finances in order and resume paying your mortgage at a later point.
A payment holiday may not be available if you have already taken a payment holiday or if the lender feels it will be irresponsible to offer you one. Some payment holidays are included with specific wording in your mortgage agreement whereas others are extended as goodwill gestures by a lender. You shouldn’t automatically assume a payment holiday will be an option and you should be prepared to work out other solutions with your lender.
Lastly, payment holidays are designed to allow you time to regain control of your financial situation. You should use the time wisely, whether that be implementing lifestyle changes to reign in expenditure or finding a new job to increase your income.
Mortgage Payment Protection Policies
You should find out if you have any mortgage payment protection policy in place. It is common to take insurance at the time of arranging a mortgage and to forget about it.
If you discover a payment protection policy, read the terms of the policy, and see if you can make a claim.
Sometimes the simplest solution to mortgage debt can be to remortgage. If you are on a Standard Variable Rate for example, you are likely to find a better mortgage deal with a lower monthly payment by remortgaging.
Remortgaging is a mortgage application, and it is highly advisable to keep up with your existing mortgage payments to keep your credit score in good condition for the application.
Extend the Mortgage Term
Some lenders will allow you to amend your existing mortgage by extending the term period. For example, if you have ten years left, they may ask if you want to extend the mortgage to fifteen years. Generally lenders allow mortgage terms to reach the oldest applicant’s 70th or 75th birthday, depending on the lender.
Extending the term of your mortgage will reduce your monthly payments but will cost you more in the long term. This is because the extended term will add to the amount of interest you pay overall. Think carefully before agreeing to extend a mortgage term, it might be better to look at remortgaging and finding a lower monthly payment within your current term.
Mortgage Interest Scheme Support
The government also offers Support for Mortgage Interest (SMI) which can help you cover the interest payments on your mortgage. You should visit the scheme page to check your eligibility.
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Speak to a Mortgage Broker
After exploring your options, it is always a good idea to discuss your financial situation with a whole of market mortgage broker. A mortgage broker may be able to provide additional options or help with finding the best deal to remortgage onto. Unlike most brokers, we offer FREE, no obligation mortgage advice. Contact us today to discuss your mortgage options.