Mortgage in arrears? Your options, explained

14th October 2019

woman with head in her hand looking at form

Your mortgage will go into arrears if you can’t keep up with your repayments.

Most homeowners pay their mortgages in full and on time each month. In fact, the number of mortgages falling into arrears are at historically low levels. (1)

Nevertheless, there were 75,890 homeowner mortgages in arrears of 2.5% or more of their outstanding balance in the second quarter of 2019. (1)

If you’re one of them, read on to find out what happens and how to get back on track.

What happens when your mortgage is in arrears

Lenders normally write to you 15 days after you’ve missed a payment.

They’ll typically give you time to repay what you’ve missed, as well as put you in touch with debt advice services.

It’s important not to put your head in the sand at this stage, because ignoring it could make things much worse.

Often lenders give you at least three months to get back on track. If you’re still behind on payments by this time, they’ll consider other options to recoup their money including considering repossessing your home.

If your lender exhausts all other options, they start the process by going to court to get a possession order.

If your lender’s granted an ‘outright possession order’ they have a legal right to own your home on the date given in the order.

If you don’t leave your home by that date, your lender can ask the court to evict you.

If they’re granted a ‘suspended possession order’ you’ll be able to stay in your home as long as you keep up with the payments set out in the order.

What to do if your mortgage is in arrears

Talk to your lender about getting your payments back on track. Being transparent and co-operative will certainly help.

Your lender could extend the mortgage term. You’ll pay your mortgage for a longer time which will increase the total interest you’ll have to pay, but your monthly payments will be lower.

You may be able to temporarily switch to paying just the interest, rather than the interest and capital which is how most mortgages work.

This will also make your monthly payments lower, but you’ll need to consider how you'll afford the payments when they go up again.

Your lender might offer you a ‘payment holiday’ which is permission to stop making payments for a certain period of time. It’s a feature of some mortgages, but not all.

This could be a good idea if your problem with paying your mortgage is temporary. Bear in mind that when the holiday comes to an end your outstanding mortgage balance will be higher, so your payments will be more too.

Government help to pay your mortgage

If you receive certain benefits, you could get help from the government to pay your mortgage.

To qualify you usually need to be receiving one of the following:

  • Income Support

  • (income-based) Jobseeker’s Allowance

  • (income-related) Employment and Support Allowance

  • Universal Credit

  • Pension Credit

This help from the government is called Support for Mortgage Interest. It’s paid as a loan, and can be used to pay off the interest charged on the money you’ve borrowed.

But it doesn’t pay the amount you borrowed or your arrears. You’d have to repay the loan with interest when you sell your home or transfer ownership of it.

Consider selling your home yourself

If you’ve gone through all other options you could sell your home rather than risk your lender taking you to court.

When lenders sell a home, their priority is to do it quickly, so you may be able to get a better price doing it yourself.

You’d also avoid having a repossession on your records, which could affect your chances of getting a mortgage in the future.

If you want to put your home on the market you’ll need to speak to your lender to make sure that you’re allowed to.

You’ll also need your lender’s permission to sell if you’re in negative equity, for example. Negative equity is when the value of your home is less than the size of your mortgage.

And you can’t sell your home if your lender’s already been granted a repossession order.

How to prevent going into arrears

One of the best ways to avoid falling into mortgage arrears is keep your borrowing and outgoings at a manageable level.

The more you over-extend yourself, the more you put your home at risk.

Make sure you have a financial cushion in case your income falls - or stops. If you don’t have any savings, try cutting your spending so you can build up a reserve.

Another option is Mortgage Payment Protection Insurance, which could help you meet your repayments if you become ill or are made redundant, for instance.

Sources:

(1) UK Finance

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