Dealing with mortgage arrears

With so much uncertainty in the current climate it is important to have as much information to help you make informed decisions if you become unable to pay your mortgage. If you get into debt and in arrears with your mortgage payments, don’t wait for your lender to contact you.

It is important to stress that during the COVID pandemic some lenders are allowing slightly different terms to help with financial hardship. Here are some of the current guidelines and government backed assistance packages.

Please note that lenders base any decisions on a case by case basis, this is based on your circumstances and credit history.

Coronavirus – if you can’t pay your mortgage

You can ask your mortgage provider to agree to pause your mortgage payments for three months. This is called a ‘payment deferral’. The deadline to ask for a payment deferral is 31 October 2020.

If you still can’t pay at the end of the first three months, you can ask for a second payment deferral of up to an additional three months. Your mortgage provider should allow this however, you won’t be allowed more than two payment deferrals.

After your payment deferral you’ll still need to make up the payments you missed plus interest added during the three months. This means you’ll have to either pay slightly more each month or extend your payment terms.

Mortgage lenders are here to help

Regardless of the external factors that lead you to financial hardship, lenders have to treat you fairly and consider any requests to change the way you pay your mortgage. They can however ultimately also take you to court to repossess your home if you can’t agree a way to pay back what you owe. But even then, it’s not too late to try to reach an agreement with them.

It is really important to remember that mortgage arrears are a priority debt. This means you usually need to pay them before any other loans and credit cards.

Seek independent financial and legal advice

Mortgage lenders are encouraged to listen if you are seeking help to ease your financial situation. Inform your lender if you’ve been speaking to a financial adviser about this too. This may help show them you’re serious about dealing with the debt.

Speak to your mortgage lender

Once you have all the facts and a basic plan in place it’s time to contact your lender.

You’ll need to tell your lender how much you can afford to pay back, so it’s a good idea to work out your budget before you call.

If you’ve got payment protection insurance, you should check if you can use it to pay the arrears on your mortgage. You might be covered if you’ve been ill or you’ve recently lost your job and have relevant insurance protection in place.

Ways to pay your mortgage

Your lender will try and find an option that works for both parties. They will discuss with you the different ways you can pay your mortgage arrears. If you’ve got any money left over each month after paying essential bills, you could suggest adding a little bit on top of your future monthly payments.

How to reduce your monthly payments

If you have a capital and interest payment based mortgage, you lender may consider offering an ‘interest only’ option to reduce the monthly payment.

This option can run to a similar length to your existing deal but remember, you are only paying the interest incurred amount borrowed. The capital amount borrowed or outstanding will still need to be paid back at the end of the overall mortgage term.

If your home is worth more than the mortgage, your lender might consider letting you add your arrears to the total amount you owe and pay it back over the lifetime of the mortgage. This is known as ‘capitalising your arrears’.

Extend your repayment period

If available and offered, this option has instant benefits – but with a longer-term obligation and higher potential overall costs. If you are offered this and choose this way of reducing payments, you will also need to revisit any life and protection insurance you have to ensure that you cover the changed repayment term. Remember that this option extends the overall length of time of your financial commitments to purchase your house.

With any options above designed to alleviate short-term affordability, there’s a real risk you could end up paying more interest over time, or even get into more debt, so it’s always worth taking financial advice before making any decisions.

If you qualify for any State benefits, it’s also worth checking whether you may be eligible for Support for Mortgage Interest (SMI) to pay the interest on your mortgage. State support for mortgage payments is much more limited these days – but always worth checking out.

What happens if I can’t agree a way of paying my arrears?

Your lender might ask a court for a ‘possession order’. This lets them sell your home and use the money from the sale to recover the money you owe.

Your lender has to give you at least 2 weeks’ notice in writing before they apply to the court. Contact your nearest Citizens Advice immediately if:

  • you’ve been told by your lender that they’re applying to court
  • you’ve received court papers
  •  you’re expecting bailiffs

Your property may be repossessed if you do not keep up payments on your mortgage.

Linear charge a non-refundable mortgage arrangement fee of between £399 and £999 when an application is submitted to a mortgage lender for you. Your adviser will agree the arrangement fee with you before commencing any chargeable work. The actual amount payable will take account of your financial circumstances, the complexity of borrowing requirements and the amount of work required to fulfil your needs.

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