The latest official statistics show that consumer prices are rising at a much faster pace than wages, putting real pressure on household finances. Against this backdrop, it's hardly surprising that there has been a sharp increase in the number of borrowers facing mortgage arrears. This is unquestionably a deeply stressful situation. After all, there is the ultimate danger of losing your home. There are, however, three important points to bear in mind. Firstly, banks are required by law to work with you to try to find a solution that doesn't involve your house being repossessed. Secondly, irrespective of their legal obligations, lenders don't like to repossess homes, largely because they don't always recover the full house valuation when they sell a so-called "repo." Finally, you might be eligible for government help with your finances. It's admittedly much easier said than done when you are worried about losing your house, but the key is to remain calm and take the following steps:
1. Work out your financials
Essentially, this means setting out all the details of your household income and your outgoings and debts. This exercise serves a number of useful purposes. Crucially, your mortgage lender will need this information to help you find a solution to your problem and having the relevant paperwork at hand will speed up the process. Just as importantly, though, listing your commitments in black and white is the first step towards finding a route out of your current circumstances. You might, by way of example, identify some areas where you can economise.
2. Check your insurance
This might sound obvious, but, in stressful situations, it's easy to overlook your insurance provisions. Do check your policies to ascertain whether they offer mortgage payment protection. You might well have bought an Accident, Sickness and Unemployment policy when you first took out your home loan. Such a policy would protect your repayments if the arrears were occasioned by redundancy, illness or injury. Insurance documentation can be fairly impenetrable and it might not be immediately apparent that you have this type of cover. Accordingly, we would recommend that you double check with your mortgage lender or broker, who will be able to advise you on the contents of any insurance you bought when you took out your home loan.
3. Talk to your lender
There is a fairly robust set of regulations governing how lenders must treat customers who are in arrears. They must, for example, write to you within fifteen days of your first missed payment, explaining any additional charges that will be incurred while you are in mortgage arrears and it is mandatory to offer you a reasonable period of time to make the full payment. A vital point is that they cannot start the repossession process until they have exhausted every other potential solution.
It is in your best interests to talk to your lender as soon as possible, because this shows that you are taking the problem seriously and are genuinely seeking a solution. In the first instance, the bank or building society will normally try to adjust your mortgage so that the monthly repayments are more manageable. The length of the mortgage might, for instance, be extended, or you might be offered a sort of grace period during which you are allowed to pay interest only. In its discussion of this topic, the Money Advice Service points out that borrowers are often amazed at how painless the process of resetting a mortgage can actually be.
4. Check whether you are eligible for government help
Depending on your income and family circumstances, you might be entitled to government help with your finances. It is well worth checking your eligibility for these state benefits, because it is known that many people are unaware of and fail to claim the financial help that is available to them. The following resources are extremely helpful in this regard:
- Government benefits calculator: https://www.gov.uk/benefits-calculators for more information.
- Turn2us charity: https://www.turn2us.org.uk.
Note: You might have heard of a central government Mortgage Rescue Scheme, a service which is designed to help owner-occupiers remain in their homes. Regrettably, it is no longer available in England, but the governments of Scotland and Wales continue to offer limited assistance:
- For more information about help in Scotland, see: https://www.mygov.scot/help-mortgage-difficulties.
- Readers in Wales should visit: http://gov.wales/topics/housing-and-regeneration/publications/mortgagerescueguide/?lang=en.
Important: If you are in receipt of certain benefits, you might be eligible for state help with mortgage interest. The conditions for receiving this assistance are rather complicated, but the following is a helpful guide: https://www.gov.uk/support-for-mortgage-interest.
5. Consult a debt advice service
If your arrears are the result of a wider debt problem, it's imperative that you avoid taking on extra commitments and the often costly services of a debt rescheduling company. We are fortunate in the UK to have access to several excellent debt advice charities which provide free, impartial and non-judgemental advice. The following are probably the most popular services:
- StepChange: https://m.stepchange.org.
- Debt Advice Foundation: http://www.debtadvicefoundation.org.
- Pay Plan: https://www.payplan.com/free-online-debt-help.
- National Debtline: https://www.mymoneysteps.org.
- Citizens Advice: https://www.citizensadvice.org.uk/about-us/contact-us/web-chat-service-mas/.
Remember that the UK has some of the highest levels of household debt in the developed world, so there is no need to be embarrassed if you are struggling: you are not alone!
6. Downsizing
If you aren't yet facing mortgage arrears, but feel that you are vulnerable to defaulting in the future, it might be worth considering relocating to a less expensive home, especially if you are currently skimping on such necessities as food and energy in order to make your monthly repayments. The most important point here is that you shouldn't panic or be rushed into a quick sale where you obtain significantly less than the full market value of your house or flat. As we highlighted in a recent Nethouseprices guide, the quick house sale services deliver a useful service, but they aren't the right option for everyone. See: https://nethouseprices.com/news/show/2591/nethouseprices-guide-quick-sales-services.
We hope you have found this feature interesting and informative. It is intended as a general guide and does not constitute formal advice.
In a future column, we will discuss repossession. Visit us again soon for this as well as for our news coverage of the property market. Coming soon: Nationwide index of house prices in the UK and a guide to shared ownership and shared equity. Don't forget to try our free instant house valuation service while you are here.
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