If you’re struggling to keep up with your mortgage payments, there’s no need to panic. There are things you can do to get back on track, help you might be entitled to, and organisations that can give you free professional advice.
Talk to your mortgage lender
If you’ve missed a mortgage payment, or know you won’t be able to make upcoming payments, the first step is to speak to your lender. It will be keen to help and explain your options.
These might include:
- Deferring a payment
- Taking a payment holiday
- Increasing your mortgage term and so reducing your monthly payments
- Switching to just paying the interest on your mortgage
- Putting a plan in place to enable you to clear mortgage arrears
The right plan of action for you will depend on your personal circumstances and how these might change in the future.
Taking a payment holiday
A payment holiday means having a break from paying your mortgage for a few months. You’ll still be charged interest during this period and you’ll need to catch up with these payments before your mortgage term ends.
Not all lenders or mortgage products offer payment holidays. Often, in order to qualify for a payment holiday, you’ll need to have previously overpaid on your mortgage.
A payment holiday, or deferring a payment, might be a good option if you’re in between jobs and expect your situation to improve.
Extending your mortgage term
If your income has dropped, extending your mortgage term to reduce your monthly payments might be the solution. If you have arrears, increasing the term may mean you can afford to pay your new mortgage payment plus an amount towards the arrears.
It’s important to understand that extending your mortgage term will increase the total amount of interest you pay overall.
Switching to interest-only
If you’re on a repayment mortgage you may be able to switch to an interest-only mortgage. This will reduce your monthly payment as you’ll only be paying the interest on the mortgage, rather than the interest and the capital.
Switching to interest-only can be a good short-term solution but you’d need to make sure you can repay the capital (the original amount borrowed) at some point before the end of the term.
If you’ve fallen behind on your scheduled mortgage payments, this is known as being “in arrears”. Don’t worry – mortgage arrears don’t automatically result in your home being repossessed. Your mortgage lender is obliged to help you.
Your lender will contact you if you miss a payment. It will list the payments you have missed, tell you how much in arrears you are, and set out any charges incurred due to missing the payments.
It’s normally possible to come to an agreement with a lender about paying off arrears. For example, you may agree to pay your normal monthly payment, plus an extra amount towards the arrears. Some lenders will give you 12 to 24 months to clear mortgage arrears.
Make a budget
Making a budget is a good first step towards paying off mortgage arrears. Make a list of all your income and outgoings and see where you can make some cutbacks. If you've got any money left over once you’ve covered all of your household bills and living costs, you can use this money to pay off your mortgage arrears.
You might have other debts such as personal loans or catalogue debts but your mortgage needs to be a priority – your home may be at risk if you don’t pay your mortgage or any other loan secured on it.
Support for Mortgage Interest scheme
You may be able to get help from the government’s Support for Mortgage Interest (SMI) scheme if you’re in mortgage arrears. You usually need to be getting, or treated as getting, a qualifying benefit (such as Universal Credit) to get SMI.
SMI will help you pay the interest on up to £200,000 of your mortgage. The benefit is paid directly to your mortgage lender and only covers the interest on your loan rather than repaying the capital. SMI is paid as a loan which you’ll need to repay, with interest, later on.
Help from debt charities
There are several debt charities that can advise you on missed payments, mortgage arrears and budgeting. These include:
- Citizens Advice
- National Debtline
Will my home be repossessed?
In most cases of mortgage arrears, you won’t end up losing your home. Your mortgage lender is not allowed to pursue repossession unless all other reasonable attempts to resolve the situation have failed.
Keep the lines of communication open with your lender – it’s more likely to escalate action against you if it cannot contact you or you ignore correspondence.