With unemployment set to rise and further house price falls likely, this is bad news for thousands of families, many of whom are already struggling to make ends meet.
The number of people in arrears on their mortgages is already climbing as are repossessions and this situation will probably worsen before it gets better. The Citizens Advice Bureau said it has seen a 51% surge in people contacting it because they were in arrears compared to the same month last year. We have more on this issue in our latest video blog, 'Repossession advice'.
With the Council of Mortgage Lenders expecting 45,000 homes to be repossessed this year, up from 26,300 in 2007, mortgage providers are being told that this option should only be a last resort and they should explore all other avenues with borrowers before taking their house.
However, there are steps you can take to try and improve your situation and reduce the risk of having your home repossessed:
Can you save money on your mortgage?
One of the main factors contributing to the increase in mortgage arrears and repossessions is the impact the credit crunch has had on the mortgage market.
Lenders are much more cautious about who they will lend to and it is now much harder than it was to get a new mortgage if you have an impaired credit rating or don't have much equity in your home. As a result many borrowers have come to the end of a cheap fixed or discounted deal and found they can't remortgage onto another product. Instead they are stuck with their current lender paying a much higher rate of interest. For many this jump in repayments is more than they can afford.
For some people though, there will be remortgage options so check to see if you could keep your monthly costs down by switching to an alternative deal.
The greatest choice is available to those who have at least 25% equity in their house, but there are a number of deals still available for those with as little as 10%. For example, Cheltenham & Gloucester has a tracker at 5.99% which runs until January 31, 2011. The arrangement fee is £594 but those remortgaging get a free valuation. Alternatively, if you would prefer a fixed rate, Britannia Building Society has a three-year fix at 6.04%, with a £999 arrangement fee (although this can be added to the loan). It's therefore well worth talking to a mortgage broker to see if there are any options available to you.
Speak to your lenders
Contact your mortgage lender, and any other lender you owe money to such as credit card and loan providers, as soon as possible. If you speak to them before you miss any payments it reduces the chances of your problems escalating to such a level that repossession is the only option.
With regards to your mortgage, there are a number of things lenders can do: If you are currently repaying capital and interest, you may be able to change the terms of the loan so you are only paying off interest which will help bring the monthly payments down.
If your problems are only temporary - maybe you've lost your job but have found another, although you don't start for a few months - your lender may agree to accept reduced payments or even a payment holiday so that your mortgage payments are suspended for a few months.
If you are already behind with your mortgage payments, it's still important to contact your lender sooner rather than later. Often lenders will agree to you repaying your arrears over a number of months, if not years, which is much better than having to stump up the entire amount in one go.
And even if you have received a repossession order, all is not lost. If you can repay your mortgage before the house is sold and contracts exchanged (even if you have moved out), you can avoid losing your home.
Explore all options
You may qualify for income support for mortgage interest - a Government scheme which will pay the interest on a mortgage up to £100,000 after 39 weeks. From next April this system will change and the Government will step in after just 13 weeks for mortgages up to £175,000. It's also worth seeing if you're eligible for any other benefits as the extra money they provide may help you meet your repayments.
Help may also be at hand if you have an insurance policy in place. Mortgage payment protection insurance (MPPI) will cover mortgage payments if you are unable to work for an extended period due to an accident, illness or unemployment - typically these policies will cover your payment for around 12 months. If you don't already have an MPPI policy in place it may be worth adding this protection - moneysupermarket.com has an MPPI comparison tool which can help you find the cheapest deals. However, you should thoroughly examine the terms and conditions of a policy before applying and look out for notable exclusions: for example, many policies will not pay out if you lose your job within six months of completing your application.
For advice tailored for your individual circumstances, get in touch with an organisation that offers free independent advice such as Citizens Advice, National Debtline and the Consumer Credit Counselling Service.
Think twice before handing over the keys
We're seeing an increasing number of people on our forums who are really struggling financially and are wondering if the best option is just to hand the keys back to the lender and move on. This isn't necessarily an easy escape route.
If you are finding it hard to sell your home, the chances are it won't be any easier for your mortgage lender. In the current market, with house prices falling, it could take some time for your home to sell and interest will continue to build during this period. You will also have to pay for the cost of selling the property and you will still owe any shortfall between the sale price and the outstanding mortgage debt. To make matters worse, getting credit in the future may also be more difficult.
Have your say: Are you looking for useful advice from those looking for a mortgage or re-mortgaging? Talk through your decision with our community in our forum.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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