Dealing with mortgage debts
If you're struggling to pay your mortgage, here's all you need to know about what your lender can and can't do...
Repossession, the legal process that allows lenders to possess your house and sell it to settle your debts can result from mortgage or secured loan arrears.
Therefore, it is important to know what your lender can and cannot do, and how you can resolve the situation to prevent repossession, if you have or you’re about to miss a repayment on a mortgage or secured loan.
Lender protocols
The government has introduced mortgage pre-action protocols to ensure that lenders take all reasonable steps to avoid repossession and only opt for it as a last resort.
Your lender must discuss the reasons for missed payments and arrange, where possible, a realistic repayment plan that covers your normal monthly payment plus something towards the arrears.
In addition, your lender should refer you to an independent debt advice service such as Consumer Credit Counselling Service (CCCS).
Engaging with your lender is therefore extremely important. They are more likely to go to court if you ignore them.
Tackling arrears and avoiding repossession
You can do this by, firstly, producing a budget listing your income and expenditure. Look to increase income or reduce expenditure where possible. Your surplus level determines how much you can pay towards your arrears. Send your lender a copy as proof of your situation.
Each lender offers different types of help and will explore options with you that may include:
- Remortgaging
This could lower your interest rate and payments. The rate depends on your property’s equity and your credit rating.
- Reduced interest rate
Reducing your interest rate lowers your monthly payments.
- Interest only
Temporarily switching to an interest-only mortgage decreases payments to a more affordable level until you can start repaying in full.
- Extending the term
Your lender increases your mortgage length, reducing monthly payments. You take longer to pay it off and accrue more interest.
- Capitalised arrears
Your arrears are added to the mortgage total. You pay them back over the term of the mortgage.
- Payment holiday
Your lender allows you a short break from paying your mortgage, helping you get back on track. Interest may be frozen. You catch up with payments before your mortgage ends.
Government initiatives that aim to keep people in their homes are currently available. They are:
- Support for Mortgage Interest
If you receive Jobseekers Allowance, Income Support or Pension Credit, the government may help cover your mortgage payment interest.
- Homeowner Mortgage Support
Part of your mortgage payments are deferred if you have a temporary income reduction. Not all lenders take part in this scheme.
- Mortgage Rescue Scheme
You may get financial help if you are facing repossession. A local housing authority may agree to buy your house and rent it back to you.
Selling up
Although difficult to accept, selling their home is the best option for some people. Downsizing or moving to rented accommodation allows people to settle debts and sell their property at market value. Repossessed houses usually sell for less.
Selling your house involves costs such as valuation and agent fees that must be met. Your lender may offer an assisted voluntary sale scheme which helps with costs and allows extra time for a sale to be made.
You could consider voluntarily surrendering your property’s keys to the lender, giving them permission to repossess and sell. However, you remain responsible for any mortgage shortfall.
If you have mortgage arrears or are facing repossession, urgently contact an independent advice service. CCCS has a specialist mortgage counselling team offering impartial expert help.
Most Recent
Comments
-
Glynh, Could you miss or reduce a months payment (with agreement of course) but put the money aside so that next month and subsequent months you can pay on time? You will obviously pay interest on the missed payment but would that equate to £480 in a year? In effect you would be paying a month behind but would save the charge they levy on you.
REPORT This comment has been reported. -
i agree. the government are not doing enough for homeowners who face repro.it's all well and god to go to citizens advise and the like but they can only talk and nothing more. i live in belfast and we don't have a mortgage rescue scheme. there is no where to turn for help. my mortgage company has not passed on mortgage interest cuts from the recession began. i lost my job due to disabilities following a sectarian assult. if i was in council housing or private rented i would get my rent paid through housing benifits,but because i'm a home owner on benifits i get 60 ponds a week housing costs according to income support but then have it taken out of my incapsity benifit. at one stage income support was paying 13 pounds per wk housing costs and 10pence a wk income support. i think it's very on fair the way the benifits are worked out. i worked all my days trying to keep a roof over my childrens heads i was a sole earner i had to care for a disabled husband and son and work 4 nites a wk. i worked holidays and days of just to pay for my home and now i'm losing it. my earns were poor as i worked for the nhs. i get a small pension of 230 per month which is taxed. to be quite honest i would rather not have this as this also effects my benifits. cheap is talk it's action people are crying out for.i feel i am just a house sitter in my own home. i can't get a remortgage because my home is in negetive equitty and no one is buying were i live in belfast it is a flash point area and trouble can erupt at any time especially now it's coming up to the marching season.
REPORT This comment has been reported. -
As ever, there's a lot of good stuff in this item. In my own experience, the lenders get a very generous press. I am a freelance translator; my business started to slip like so many others in the early part of last year. I ended up claiming jobseekers' allowance. Conscious of my obligations, I went to the lender for advice; their preference is to conduct meetings over the telephone. As I am partially deaf, I asked for a personal meeting. While the adviser (very young) was perfectly pleasant and tried to be helpful, he clearly did not have the knowledge or experience to think outside the box, His most telling comment was that I might "look on the Internet" for details of any government schemes offering assistance. I am now working part-time and am still doing some part-time freelance work; I have been able to make additional payments on the mortgage, but the nature of my work means that I receive payments at different times of the month. The lender applies a charge of £40 per month because it deems me to be paying late, although I am actually paying above the amount required. That is going a long way to wiping out any progress I may be making on paying down the arrears. Ever felt like Sisyphus, pushing the rock up to the top of the hill only for it to roll straight back down again?
REPORT This comment has been reported.
Do you want to comment on this article? You need to be signed in for this feature
22 June 2010