If you're struggling to pay the mortgage and threatened with repossession, follow these steps.
If you speak to people in serious arrears or in the midst of repossession proceedings, they will all tell you the same thing. The prospect of losing the roof over their head is terrifying. It causes sleepless nights, stress and relationship breakdowns. You want to avoid it at all costs.
But not one of the people affected by repossession bought their home with the intention of losing it. Perhaps arrears crept up on them, through unavoidable circumstances like redundancy or bereavement, or maybe they simply overspent.
Whatever the reason, serious arrears – of over 10% of the mortgage balance – are very stressful and difficult to escape from.
Improving picture?
Figures released this month on arrears and repossessions show a stable picture, with 9,600 repossessions in the first quarter, according to the Council of Mortgage Lenders – the same as the previous year.
Overall arrears fell slightly, but let’s face it - with interest rates at an all-time low, you wouldn’t expect anything less. Mortgages have been easy to service for many borrowers over the last few years, so if you are struggling now, you have a problem.
We have already started to see lenders hike their standard variable rates and new mortgage rates are currently creeping up. Add in a Bank of England base rate increase and thousands of families who are only just managing to make ends meet could be forced into arrears.
If you are worried about making your mortgage payments right now, or you know you will miss your next payment, you need to take action. Waiting will not improve your situation, but it could put your home at risk.
Talk to your lender today
If you have already missed a payment or you think there is a good chance you won’t be able to pay the next one, pick up your phone and speak to your lender now.
It cannot be stressed how important this is. Remember it is in the lender’s interest to help you get back on track. They might let you reduce your payments for a period of time, perhaps only paying the interest until you get back on your feet.
That is just one of the options a lender can offer, and they will tailor a repayment plan to your individual needs and circumstances. But they can’t help if you don’t let them know you have a problem.
Pay what you can
Don’t assume that if you can’t meet your whole mortgage payment you might as well miss it entirely. It is very important that you pay as much as you can afford each month, even if this isn’t the full amount.
It shows your lender that you are trying your best to manage your financial problems, and makes them far more likely to want to work with you to come up with a workable solution.
Secondly, it could mean you can keep your mortgage ticking over by covering the interest portion of your monthly repayment which, while not ideal, is far better than falling deep into arrears.
[SPOTLIGHT]And thirdly, it is much, much easier to get out of minor arrears. Once you start missing whole monthly repayments you are giving yourself a mountain to climb to get back on track.
Commit to your new plan
If your lender agrees a new repayment plan with you, make sure it is affordable before you commit.
Lenders will be flexible the first time you have financial difficulties, but if they agree to reduced payments and you still don’t pay up, they may not cut you as much slack next time.
Don’t agree to a plan that still seems overambitious. It is better to be honest about what you can afford and then stick to it.
Get help, but don’t pay for it
There is a good choice of free, independent debt advice in the UK from a number of sources.
Unfortunately there has also been a proliferation of debt management companies in the last few years, which will offer you help and support, but charge for it. You can access free, independent debt advice from Citizens Advice and the Consumer Credit Counselling Service among others.
Read Get debt advice for free for more.
Prevention better than cure
Of course, you may be thinking that this doesn’t concern you. If you are comfortably meeting your mortgage repayments, arrears and repossession probably seems a world away. But it doesn’t take a lot for your financial situation to change dramatically, and unfortunately this happens to families up and down the country every day.
If you are in the fortunate position of being able to afford your mortgage and even having surplus income, what you should really be doing is future-proofing your homeloan against unforeseen problems.
You can do this by:
Overpaying your mortgage: By paying more than your monthly commitment, you will reduce the overall balance of your mortgage. This in turns reduces the amount of interest you are charged.
Over time this can have a large impact, saving you money over the long run and increasing the equity you have in your home. If you do face financial problems in the future your lender will be much more sympathetic to your plight, and because you have got yourself ahead of schedule you will have more options.
Protect yourself: If you can afford a Mortgage Payment Protection Insurance policy, it is a very smart idea. You can cover your monthly mortgage repayments against accident, sickness and unemployment from as little as £5 per £100 covered.
Then if you are unable to work the policy will cover your monthly repayment and prevent you falling into arrears for up to 24 months – giving you one less thing to worry about.
Don’t overstretch: When you take out a mortgage, or move home, be as prudent as possible. Remember you may be able to just afford a certain amount a month, but if your circumstances change, as they often do, you don’t want to have left yourself with no buffer.
If you take out a mortgage that is comfortably within your means you have a lot more chance of coping if you encounter financial difficulty in the future.
More on property and mortgages: