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.