What If I Can’t Pay My Mortgage? Your Guide to Mortgage Arrears and Repossession

Posted 30 September 2019 by Nick Parkhouse

“I can’t pay my mortgage – what should I do?” Here’s your complete guide to mortgage arrears and repossession...

Recent figures from the Ministry of Justice showed that mortgage possession claims rose by 39% in the three months to June compared with the same quarter in 2018.  

The data reveals that around 6,180 households had mortgage possessions claims made against them in the past three months.

There are many reasons why you suddenly may not be able to pay your mortgage, from ill health to losing your job. So, what should you do if you find yourself struggling to keep up your mortgage payments? Keep reading for your complete guide.

What do you do if you can’t pay your mortgage?

If you miss a mortgage payment, you become in arrears to your lender. As soon as you go into arrears without informing your lender, you’ll begin a process which could end up in your home being repossessed.

If you miss a payment on your mortgage without letting your lender know, they are likely to report the late payment on your credit report. This could stay on your report for years and adversely affect your credit rating.

So, if you think you’re going to miss a repayment, talk to your mortgage lender first. You’ll be in a much stronger position if you have discussed the issue with your lender and either agreed to miss a payment or informed them that it is about to happen.

When you speak to your lender, they will offer you a range of options which may help you to bring your repayments up to date and to help you avoid missing any more payments.

What options will my mortgage lender offer?

As soon as you know that you may have trouble in meeting a mortgage repayment you should contact your lender. Options that you may be offered include:

  • Deferring the payment – if it is a short-term issue, they may let you miss a payment and instead make two payments the following month
  • Reduce your payment – your lender may accept smaller payments for a short period, and add any shortfall onto your payments later on
  • Allowing you to take a payment holiday – if you just need a short time to catch up, your lender may let you take a short payment holiday. Remember that any missed payments will be added to your mortgage balance
  • Extending your mortgage term – if you extend your mortgage term and spread the debt over a longer period, you will reduce the amount that you have to pay each month. Bear in mind that you’ll pay more interest in the long-term
  • Changing to ‘interest only’ – if you are on a capital and interest mortgage then your lender may allow you to switch to just paying the interest. This will reduce your monthly mortgage payment, but you may then have no method of paying back the money that you have borrowed. As this will cost you more interest in the long term, you should switch back to a repayment mortgage as soon as you can.

Your lender should work with you to find a way to ensure that you do not lose your home.

A government scheme that could help you

If you are really struggling to keep up your mortgage payments, then there is a government scheme that could help.

The Support for Mortgage Interest (SMI) scheme could give you help with interest payments on your mortgage or loans you have taken out for home improvements if you receive any of the following benefits:

  • Income Support
  • Pension Credit
  • Universal Credit
  • Income-based Jobseeker's Allowance
  • Income-related Employment and Support Allowance

If you're eligible for the SMI scheme, the government steps in and makes interest payments on the first £200,000 of your outstanding mortgage during the period you can’t afford them (£100,000 if you're getting Pension Credit).

The benefit is paid directly to your mortgage lender and only covers the interest rather than repaying the capital. Bear in mind also that the level of interest is set by the government (it is currently 2.61%) and that your specific rate isn't used.

You can't claim if you have more than £16,000 in savings, or if you own more than one residential property.

Remember also that, since April 2018, SMI has been paid in the form of a loan. So, you must pay back the amount the government paid into your mortgage for you when you sell your home or pass the ownership to someone else. These loans will also attract interest, although the rate is low (currently 1.3%).

What you need to know about repossession

A mortgage is a loan secured on your home. That means if you can't repay, the lender has a right to take your home instead – and repossession is this legal process.

If you are in active dialogue with your lender then you reduce the risk of them starting repossession proceedings if you have missed payments. Additionally, most lenders don’t want to repossess your home as they would prefer you to pay the mortgage.

Lenders must use repossession only as a final resort, and major lenders won't commence repossession proceedings until at least three months of arrears have occurred, and after they have referred you to independent debt advice.

However, if it looks inevitable that you can’t keep up your mortgage repayments, or you don't communicate with your lender, it will try to repossess your home.

Once your home is repossessed, your lender will often put it up for auction to get a quick sale. This doesn’t mean that they will achieve the best price and, if the sale doesn't cover what you owe, your lender can still chase you for the shortfall. The lender can pursue you for this shortfall for up to 12 years, and six years for any interest.

So, if it looks as if you are going to be repossessed, consider selling the home yourself as you could achieve a higher price. You will also avoid having a repossession registered against you which will adversely affect your credit rating.

Never try to fight repossession on your own. It's a legal issue, and you need legal advice as soon as possible. You should also always go to the court hearing, as the judge is much more likely to give you longer to sort the problems out if you show that you're serious.

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