Find out what your options are if you’re struggling with your mortgage payments, in this expert blog by Foothold partner Shelter.
What to do if you can’t keep up with your mortgage payments
Despite the upheaval of the last 3 years, 2021 saw the lowest rate of new mortgage arrears cases since the mid-2000s.
While the Financial Times attributes this lull in possession cases in part to the ostensible (and uneven) ‘benefits’ of lockdown for homeowners (such as reduced expenditure and the effects of the furlough scheme), it’s also been influenced by record low interest rates and, more recently, the enforcement ban on possession action.
With the ban lifted, the Bank of England’s base rate rising to 0.25%, the threat of another recession looming and the cost-of-living crisis taking its toll, all the conditions for another spike in repossession cases are in place.
For homeowners concerned about making ends meet, this is an uncertain time. Knowing your rights and entitlements if you are at risk of falling into mortgage arrears is an important first step in keeping your home.
Here are some things you can do if you’re worried you’re not going to be able to keep up with your mortgage payments.
1. Get advice
Seeking help from a Regulated Debt Adviser can help you understand your situation holistically and come up with a plan to tackle your arrears.
A debt adviser can tell you whether you are entitled to any benefits, help you manage your money and prioritise your debts, draw up a financial statement and negotiate a repayment plan with your lender and other creditors.
A Regulated Debt Adviser could also refer you for Breathing Space – a government debt respite scheme designed to help people who are struggling with debt. Breathing Space can freeze payment demands and interest and stop or pause enforcement action while you get advice and look for a longer-term solution.
Depending on your circumstances, you may be entitled to a standard 60-day Breathing Space or an indefinite moratorium if you are experiencing a mental health crisis.
When seeking out debt advice, make sure you approach a regulated advisor. Debt management companies who charge for their services can disguise their intentions in online advertising, ultimately offering you paid-for debt management plans.
2. Contact your lender early
Lenders may be more inclined to agree to a repayment plan or other proposed solution if you alert them to potential problems early on.
However, you can approach them to negotiate even if they have already started court action. If you can demonstrate that you are seeking debt advice, this will strengthen your position by showing that you are proactively looking for a solution.
Since 1999, lenders have been obliged to follow the Pre-Action Protocol in mortgage possession cases. The protocol is designed to encourage greater contact between parties from the outset and, ideally, avoid court action altogether.
The protocol requires lenders to treat mortgagees fairly and consider any suggestions they make to resolve their arrears.
Other conditions upon the lender include the provision of prescribed information (a list of missed payments, outstanding mortgage debt and the total amount of arrears and other charges), evidence that the mortgagee has applied for support, consideration of any complaints raised by the mortgagee to the Financial Ombudsman service, and evidence that the lender has attempted to contact the mortgagee to resolve their arrears in the three months prior to possession action.
If the lender has not complied with the Pre-Action Protocol, you can make an official complaint. If you are dissatisfied with the outcome, or have not had a response within 8 weeks of your complaint, you can contact the Financial Ombudsman Service. An upheld complaint may delay or prevent possession action.
3. Agree a repayment plan
You can propose a repayment plan to your lender even if possession action is underway.
Your repayment plan should show that you can cover your standard monthly payment, plus extra towards clearing your arrears by the end of the mortgage term.
You will need to provide evidence of your circumstances and explain why you have struggled to make your payments.
It would be advisable to make a minimum repayment offer initially to give you space to negotiate upwards. You can calculate your minimum monthly repayment by dividing your total arrears by the number of months left on your mortgage term.
For example: You have arrears of £5,000 and a 10-year (120 months) remaining mortgage term. Your standard monthly repayments are £550.
In this scenario your new standard monthly repayments would be £591.66 and you would clear your arrears by the end of your mortgage term.
A lender is not obliged to accept your offer, but they must prove that they have considered it and give reasons why they have declined.
They must write to you within 10 days of your offer and explain their reasoning. Your lender may make a counteroffer, and they must give you a reasonable period to consider and respond.
Keep all evidence of any proposal you have made. If the case ends up going to court, you can use this to prove that you have made reasonable attempts to reach a solution. The courts have discretion to decide whether a lender should accept your offer.
4. Alternative methods of resolving your arrears
There are a number of other solutions a lender may consider in reaching a resolution. These are at the lender’s discretion, and the likelihood of success will depend on your circumstances.
Capitalising your arrears: your lender may agree to absorb your arrears into the total balance of the mortgage you owe. This figure will include any interest and penalties you have incurred.
Extend your repayment plan: if there is equity in your property, the lender may agree to extending the repayment plan. This benefits the lender as they will ultimately receive more interest if the term is extended. An extension may only be considered if the original mortgage was taken out over a short period of time, and if it can be demonstrated that your payments will be reduced to a sustainable level.
Ask to reduce your interest payments: a lender may agree to reduce your interest payments if you are attempting to sell your property, and if you can prove that issues with your finances are temporary (e.g. you are about to start a new job).
Equity release: you may be able to agree for the lender to release equity in your property to you while you continue to live there. This does not have to be repaid until the property is sold or until the mortgagee passes away. Seek independent advice from an Independent Financial Adviser before considering this option.
5. Increase your income
It may sound like an obvious (and oversimplified) suggestion, but there are ways of increasing your income without having to be overly frugal or seek out a better paying job.
Alternative sources of financial help are available if you know where to look and you are eligible for support.
If you are in receipt of benefits, you may wish to check that you are receiving all the benefits to which you are entitled. Use the Benefits Calculator on the Turn2Us website to see if you are owed any further support.
If you suspect you are owed more, you can get further benefits advice from your local Citizens Advice Bureau.
You could also check the Turn2Us website to see if you are eligible for a grant and support with your energy and water bills.
Your local council may run a local welfare assistance scheme to help low-income families in need. You can ask your local Citizens Advice Bureau about welfare assistance schemes in your area and how to apply.
If you are in work, there may be a charity which supports employees in your particular field. For example, the Hospitality Action Group and the Licensed Trade Charity can offer grants to support workers in the industry in times of financial difficulty. Foothold themselves exist to support engineers who have fallen on hard times.
Ultimately, if you find yourself falling into mortgage arrears, the key things to remember are:
- Don’t panic. There is guidance and support available to you to help you make the best decisions.
- Take advice. A Regulated Debt Adviser will be able to support you in your negotiations with your lender.
- Be transparent. If you are honest about your circumstances and can prove you are proactively seeking advice, this will strengthen your position in your negotiations.
- Know your rights. If your lender is not treating you fairly or considering your offers, you can challenge them with help and support.
If you’re facing a housing crisis and are fearing for your and your family’s safety and security, you don’t have to go through it alone. Get in touch today and let’s talk about how Foothold might be able to help.