The current cost of living crisis is putting a squeeze on everyone’s household budgets. We can give you advice and support to help manage paying your mortgage.
The most important thing is to get help early, before things become unmanageable.
Speaking to your mortgage lender
If you are worried you can't pay your mortgage, home loan, or are behind with payments, you should contact your mortgage lender as soon as possible.
Your lender should treat you fairly and advise you what they can do to help you keep your home, with repossession as a last resort.
Your lender would prefer to decide to settle the debt, rather than repossess your property. You must, however, be proactive and engage with them to make an agreement to avoid repossession.
Mortgage Charter
On 26 June 2023, the UK’s largest mortgage lenders and the Financial Conduct Authority (FCA) have agreed with the Chancellor a set of standards that they will adopt when helping their regulated residential mortgage borrowers worried about higher rates.
All lenders have an extensive range of measures that they use for customers experiencing difficulties. They will continue to use these in conjunction with the new measures agreed by the signatories to this Charter:
All lenders have agreed that:
- anyone worried about their mortgage repayments can contact their lender for help and guidance, without any impact on their credit file and we would encourage you to contact your bank who are there to help
- there will be support for customers who are up-to-date with payments to switch to a new mortgage deal at the end of their existing fixed rate deal without another affordability check
- they will provide well-timed information to help customers plan ahead should their current rate be due to end
- they will offer tailored support for anyone struggling and deploy highly trained staff to help customers. This could mean extending their term to reduce their payments, offering a switch to interest only payments, but also a range of other options like a temporary payment deferral or part interest-part repayment. The right option will depend on the customer’s circumstances
Signatories to this Charter have agreed:
- from 26 June, a borrower will not be forced to leave their home without their consent unless in exceptional circumstances, in less than a year from their first missed payment
- with effect from 10 July customers approaching the end of a fixed rate deal will have the chance to lock in a deal up to six months ahead. They will also be able to manage their new deal and request a better like for like deal with their lender right up until their new term starts, if one is available
- a new deal between lenders, the FCA and the government permitting customers who are up to date with their payments to:
- Switch to interest-only payments for six months or
- extend their mortgage term to reduce their monthly payments and give customers the option to revert to their original term within 6 months by contacting their lender
These options can be taken by customers who are up to date with their payments without a new affordability check or affecting their credit score. Customers who are currently in arrears should continue to work with their lender for the support that they need.
Options if you cannot pay your mortgage
In order to resolve any mortgage arrears you could:
- arrange a repayment holiday from your mortgage
- reduce your payments for a set period
- switch to an interest-only mortgage
- re-mortgage with a longer term and lower repayments
- use payment protection insurance (PPI) to cover your arrears
- think about debt solutions such as bankruptcy, IVA or a debt management plan
- sell the property
By law, the lenders must consider any reasonable suggestions you make to clear your debt before pursuing a repossession from the county courts. They must write an official warning of this legal action before they start it. You will be able to negotiate a solution at this point too.
Keep a record of all the communications you have with your lender, as these will support your case if it does go to court. If you make an agreement, you need to make sure you can afford it as you will lose goodwill if you cannot pay later. Payments should be realistic and reliable so do not over offer but make a financial plan to work out what is affordable to you. We can help you to draft up a budget plan. Contact us if you would like help with this.
If you stop paying your mortgage and make no effort to communicate with your lender, this will harm any case you make against your property being repossessed.
Our cost of living help pages have guidance if you are struggling financially.
Selling the property with mortgage arrears
The lender may agree to suspend your mortgage arrears so you can sell the property.
To qualify you must:
- show evidence of steps you’ve taken to sell the property at a realistic price
- share details of all offers you receive
- show proof that you’ve arranged for the property to be assessed, including an Energy Performance Certificate (EPC)
- arrange for your estate agent and conveyancer to contact your lender about the progress of the sale
Reposession
If negotiations fail, the mortgage lenders can take you to court in a bid to repossess your home.
In court, you will be able to argue the case for one of the solutions above. If you can show evidence of trying to fix your debts and co-operate with your mortgage lender, this will strengthen your case.
A judge will then sanction one of the following outcomes:
- a repossession - this means you would be evicted from the property, allowing the lender to sell it to repay your mortgage debts
- a suspended possession order - this allows you to stay in your home, provided you meet certain conditions. If you broke the agreed conditions, your lender could apply to the courts to evict you
- an adjournment - a postponement of the case, allowing both parties to take certain steps before the case is reviewed at a later date
- a dismissal - this could occur if the lender doesn’t follow the correct procedure for bringing legal proceedings against you, or if you clear your arrears before the case is brought to court
Managing your mortgage if you lose your job
The first step is to inform your mortgage lender of your change in circumstances as soon as possible. Together, you can compromise on the most suitable way to repay your debt.
Consider whether you have any payment protection insurance and whether this could help cover the payments whilst you find another job.
Under FCA regulations, your lender will have to consider any reasonable proposals for repaying your debt. Here are some ideas to help you through this rough financial patch.
Claim any benefits you’re entitled to
If you lose your job, you may be entitled to benefits, including:
- Council Tax Reduction
- Working Tax Credits
- Jobseeker’s Allowance
- Universal Credit
If your income has dropped, you will probably be entitled to pay less tax and could even be eligible for a tax refund or Tax Credits. Claim these as soon as possible, as they could help ease your mortgage payment problems.
Check if you are entitled to any benefits.
Support for Mortgage Interest (SMI) loans
Before April 2018, Support for Mortgage Interest (SMI) was a benefit that did not need to be paid back. It has now become a loan, which means that any SMI loan payments you get must be repaid with interest when you sell or transfer ownership of your home.
SMI loan payments can help towards the outstanding balance on the mortgage and/or other loans secured on your property (up to a limit).
You may qualify for an SMI loan from the Department of Work and Pensions (DWP) if you and/or your partner:
- have a mortgage and/or loan secured on your property, or make alternative financial payments for the home that you live in; and
- receive the guarantee element of Pension Credit; or
- have been receiving Income Support, Jobseeker’s Allowance or Employment & Support Allowance continuously for 39 weeks (exceptions apply); or
- have been receiving Universal Credit for 9 consecutive months
For Universal Credit claimants to qualify for an SMI loan, they must also have no earned income at all.
Calculate SMI loan payments
For working aged people the limit is £200,000. Any mortgage or loan specifically used for adaptations to your property will not count towards the £200,000 if these adaptations are to meet the needs of a disabled person in the household. For pension age people the upper limit is usually £100,000 but there are exceptions.
A standard interest rate is then used to work out the amount you may get. This is currently 2.09% (it was 2.61% between April 2018 and April 2021). For example, if your mortgage balance is £100,000 the maximum SMI Loan payment you could receive would be £100,000 x 2.09% = £2,090 per year or £40.20 per week.
If you have any income coming in or another adult living with you who is not your partner (a non-dependant), this may then be taken into account to reduce the maximum SMI Loan payment you qualify for. The rules are complex, but the benefits calculator will work out how much SMI Loan you may qualify for and display this alongside your benefit entitlements.
Second mortgages and home loans
Always think very carefully before taking out a second mortgage or securing a loan to help you make ends meet, or bring in extra money.
A secured loan uses your property as security in case you can’t make the repayments on the loan.
You should review your budget to make sure that you can afford anything you commit to. If the interest rates are variable, you should build in that they are likely to rise in the coming months and years to “cushion” yourself.
Get help and advice
Contact us and we will do all we can to help you.
We can support you by:
- helping to negotiate with your lender
- drawing up a budget plan to know what an affordable sum is to pay arrears
- explaining the process to you and referring you to other agencies if you need additional support