When Mortgage Arrears Loom

What action should you take if you start falling behind with your mortgage payments?

In the last year, more than three quarters of a million people have missed one or more mortgage payments. So says the national charity, Citizens Advice which is concerned that rising inflation is likely to lead to further rate increases thus exacerbating the situation. After all, missed mortgage payments ultimately lead to repossession.

According to the Council of Mortgage Lenders, long-term arrears are still at relatively low levels although repossessions are up slightly but, nevertheless, considering all the main debt advice agencies have been reporting big increases in the numbers of people phoning their helplines, there is certainly cause for concern.

Local Citizens Advice offices dealt with 1.25 million debt problems last year while the Consumer Credit Counselling Service reports an increase of 27% in helping people to set up debt management plans. The number of people opting for bankruptcy or Individual Voluntary Arrangements is also rising rapidly.

And, although part of this can be attributed to greater awareness amongst the public of addressing debt problems sooner rather than later and that there are debt advice agencies offering help, it's still a fact that the major banks have been reporting sizeable increases in the amount of bad debts that they're having write off.

At any rate, what do you do if you're worried about the possibility of rising interest rates or you've already found it hard to meet your monthly payments?

If it's the possibility of rising interest rates that bothers you then consider fixing your mortgage rate. More importantly, if you start falling behind with your mortgage payments, get in touch with your lender immediately to discuss a plan of action.

They will be much more likely to actively try and help you if they know that you are making efforts to help yourself particularly as they are required to take your circumstances into account and to treat you fairly. You can complain to the Banking Code Standards Board and the Financial Ombudsman Service if they don't.

So, make sure you work out a personal budget showing income and outgoings so that you can discuss your options. For example, if you have a repayment mortgage, ask your lender if they'll accept interest-only payments for a few months. If you're already paying interest-only, you should be able to temporarily suspend your payments into your endowment policy or ISA in order to free up some money to meet the mortgage payment.

Once you're back on your feet, you can make up the arrears by overpaying your mortgage or by adding the arrears to your mortgage balance so you can spread the payments over the remaining period of your mortgage term. Alternatively, they may allow you to take a short payment holiday or extend your mortgage term.

Above all, don't do the ostrich thing! Ignoring debt problems won't make your troubles go away - in fact, they'll get worse. Seriously.

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