Mortgage Arrears

Mortgage arrears. What to do if you’re struggling with repayments

If you have mortgage arrears it means you’re behind with your payments. Missed mortgage payments are recorded on your credit file and if you don’t pay what you owe, you’re at risk of your house being repossessed.

What happens if you don’t pay your mortgage on time?

Firstly, the mortgage provider will contact you to find out why your payment hasn’t come through. At this point, they should give you the opportunity to get your payments back on track.

Although many of us fear our homes being repossessed, repossession is always a last resort.

When you contact your lender they'll:

Give you the option to pay what you owe in full.
Consider an agreement to pay the arrears in instalments, if you can’t pay the full amount.
They may take further action to collect the debt, if you fail to keep to your payment arrangement.

Options your lender may discuss with you

Switching to an interest-only mortgage

This isn’t a long-term solution because you’d only be repaying the interest part of the mortgage. You need to make sure that you can also repay the ‘capital’ (the original amount borrowed) at some point before the end of the term.

Extending the term of your mortgage

This will reduce your monthly payments, helping to make them more affordable. You should consider whether you’d realistically be able to continue repaying the mortgage over a longer period of time, particularly if this would be after your retirement.

Giving you a payment holiday

This means you’d have a break from paying your mortgage for a few months. You’d need to catch up with these payments before your mortgage term ends. It’s possible that your lender will still charge interest during the payment holiday, which would mean you’d pay back more overall.

Helping you with an assisted voluntary sale scheme

Your lender may offer an assisted voluntary sale scheme. This means they will give you extra time and help if you decide to sell your property.

Recommending government mortgage help

In some cases, you can get government mortgage help with your mortgage payments. This is called Support for Mortgage Interest (SMI).

How I can clear my mortgage arrears?

The first step to repaying your mortgage arrears is to create a budget so you have a clear understanding of your finances.

List all your income, spending and debts.
See if there’s any money left over after you’ve covered all your household bills and living costs. This is the amount you can afford to pay towards your mortgage arrears.
Look into ways to increase your income and reduce your spending so you can pay off your arrears more quickly.
Contact your lender to agree to a new payment plan. Give them a copy of your budget to show them you’re paying as much as you can afford.

If you’re worried about not being able to afford your monthly payments, get in touch with us for free, personalised debt advice.

How long do mortgage arrears stay on a credit file?

All missed, late or partial payments are recorded on your credit file for at least six years. Find out more about debt and credit files.

Can I sell my house with mortgage arrears?

Yes you can, and sometimes that’s the best option if there’s no other way to pay what you owe. However, you do need to consider if this would be the best option for you. It might not be suitable if:

You’re in negative equity, meaning the property is worth less than you owe to the lender
You’d have to rent a home with higher monthly payments
You’re considering going ahead with an insolvency solution, such as bankruptcy. The person overseeing any bankruptcy (called the official receiver) may look into the sale when they investigate your insolvency, especially if you sold the house for significantly below market value

Is there any way to protect myself from repossession if I’m behind on my mortgage?

If you’re behind on your mortgage, you may qualify for the Breathing Space scheme. This could give you up to 60 days’ respite from interest, fees, and court action. If you qualify, your lender cannot evict you for mortgage arrears during your Breathing Space.

Breathing Space is there to reduce stress while you deal with your debts, so it’s important that you seek debt advice during this time.

Once your Breathing Space is over, your lender will have the power to start the repossession process again.

Dealing with mortgage arrears

If you get into debt (‘in arrears’) with your mortgage payments, don’t wait for your lender to contact you.

They’ll normally write to you within 15 days of a missed payment, but you should talk to them as soon as possible.

Lenders have to treat you fairly and consider any request you make to change the way you pay your mortgage.

They can take you to court to repossess your home if you can’t agree a way to pay back what you owe. But even then, it’s not too late to try to reach an agreement with them.

Mortgage arrears are a priority debt. This means you need to pay them before debts like credit cards.

Work out what you can afford

You’ll need to tell your lender how much you can afford to pay back, so it’s a good idea to work out your budget before you call.

It’s also a good idea to tell your lender if you’ve been speaking to a debt adviser. This shows them you’re serious about dealing with the debt.

If you’ve got payment protection insurance, you should check if you can use it to pay the arrears on your mortgage. You might be covered if you’ve been ill or you’ve recently lost your job, for example.

Ways to pay your arrears

Your lender will discuss the different ways you can pay your mortgage arrears. If you’ve got any money left over each month after paying essential bills, you could suggest adding a little bit on top of your future monthly payments.

Example

You normally pay £400 a month for your mortgage, but last month you missed your payment.

Instead of paying what you owe in one amount, you could suggest paying it back in 4 monthly instalments of £100.

You’d add this £100 to your regular mortgage payment of £400, so for the next 4 months you’d pay your lender £500 a month.

Other ways of paying off the arrears on your mortgage

If your home is worth more than the mortgage, your lender might let you add your arrears to the total amount you owe and pay it back over the lifetime of the mortgage. This is known as ‘capitalising your arrears’.

You might also be able to pay off your arrears using your pension or an endowment policy - which is a type of life assurance.

Reduce your monthly payments

If you’re struggling to pay your mortgage every month, you could ask to:

pay the debt over a longer period
switch to interest-only payments
take a break from your payments for a few months - this is known as taking a ‘repayment holiday’

If you get benefits, it’s also worth checking if you’re eligible for Support for Mortgage Interest (SMI). You might be able to use SMI to pay the interest on your mortgage.

If you can’t agree a way of paying your arrears

Your lender might ask a court for a ‘possession order’. This lets them sell your home and use the money from the sale to recover the money you owe.

Your lender has to give you at least 2 weeks notice in writing before they apply to the court.