Falling behind on mortgage payments can be a stressful and overwhelming experience. Mortgage arrears—when you miss one or more payments on your mortgage—can quickly escalate if not addressed. However, the good news is that there are steps you can take to regain control and avoid serious consequences.
This guide will walk you through everything you need to know about handling mortgage arrears in the UK, with practical advice to help you navigate this challenging situation.
What Are Mortgage Arrears?
Mortgage arrears occur when you miss a scheduled mortgage payment. Even a single missed payment can result in being in arrears, but the situation becomes more serious if the issue is not resolved quickly. Lenders have the legal right to take action if payments are not brought up to date, including repossessing the property in extreme cases.
However, repossession is usually the last resort. Lenders in the UK are required by the Financial Conduct Authority (FCA) to treat borrowers fairly and explore alternatives before taking drastic measures.
Step 1: Don’t Panic—Take Action Immediately
The first and most important step is to face the situation head-on. Ignoring the problem will only make things worse, as missed payments can lead to increased fees, legal action, and damage to your credit score.
Here’s what you should do as soon as you realise you’re falling behind:
Contact Your Lender: Most lenders are willing to work with you if you explain your situation. Be honest about your financial difficulties, and ask about any assistance they can provide.
Review Your Finances: Take a close look at your budget to determine how much you can realistically afford to pay toward your mortgage.
Step 2: Understand Your Rights as a Borrower
In the UK, lenders must follow the Mortgage Conduct of Business (MCOB) rules, which are designed to protect borrowers. These rules state that:
– Lenders must treat you fairly.
– They must consider alternative solutions before starting repossession proceedings.
– They are required to give you reasonable time to repay arrears.
Understanding these rights can give you confidence when negotiating with your lender.
Step 3: Explore Your Options
Once you’ve contacted your lender, discuss potential solutions to manage your arrears.
Common options include:
- Temporary Payment Plan: Your lender may agree to a short-term arrangement where you pay a reduced amount until your financial situation improves.
- Adding Arrears to the Loan: This option, known as capitalising the arrears, allows you to spread the missed payments across the remaining term of your mortgage.
- Switching to Interest-Only Payments: If you’re on a repayment mortgage, your lender may let you temporarily switch to interest-only payments, reducing your monthly outgoings.
- Payment Holiday: Some lenders offer payment holidays, allowing you to pause payments for a short period. However, interest will continue to accrue during this time.
- Extending Your Mortgage Term: By increasing the length of your mortgage term, you can lower your monthly payments, though you’ll pay more in interest over the long term.
Step 4: Seek Professional Advice
If your financial difficulties persist, it’s a good idea to seek help from a mortgage adviser or debt specialist. There are several organisations in the UK that provide free, confidential advice, including:
Citizens Advice: Offers guidance on dealing with debt and negotiating with lenders.
StepChange Debt Charity: Provides tailored advice and solutions for managing mortgage arrears and other debts.
National Debtline: A free helpline offering advice on debt-related issues.
These professionals can help you explore all available options and create a plan that works for your circumstances.
Step 5: Avoid Common Pitfalls
When dealing with mortgage arrears, it’s essential to avoid these common mistakes:
- Ignoring Communication: Don’t ignore letters or phone calls from your lender. Respond promptly and stay in contact.
- Relying on Credit Cards or Payday Loans: Using high-interest debt to cover mortgage payments can make your financial situation worse.
- Failing to Prioritise Your Mortgage: Housing costs should be your top priority when allocating your income, as losing your home will have long-term repercussions.
- Delaying Action: The earlier you address the problem, the more options you’ll have available.
Step 6: Understand Repossession Procedures
Repossession is the last step lenders take when all other options have been exhausted. If your lender starts legal proceedings, you will receive a repossession order from the court. At this stage, you still have options:
Attend the Court Hearing: Present your case and show evidence that you’re working on resolving your arrears.
Apply for a Time Order: This can give you more time to catch up on payments.
Seek Help Immediately: If repossession proceedings begin, contact organisations like Shelter for urgent assistance.
Preventing Future Mortgage Arrears
Once you’ve resolved your arrears, it’s important to take steps to avoid falling behind again:
- Build an Emergency Fund: Save enough to cover at least three months of expenses in case of unexpected events.
- Review Your Budget Regularly: Keep track of your income and outgoings to ensure you’re living within your means.
- Work with a Mortgage Adviser: If your current mortgage is unaffordable, a broker can help you remortgage to a more manageable deal.
Conclusion
Mortgage arrears are a challenging but manageable issue. By taking immediate action, understanding your rights, and exploring available options, you can work toward resolving your arrears and securing your financial future. Remember, you don’t have to face this alone—reach out to your lender, seek professional advice, and take proactive steps to regain control.
If you’re struggling with your mortgage or have questions about managing arrears, contact our team of expert mortgage advisers today. We’re here to guide you every step of the way.