Falling into arrears with your mortgage payments is stressful. The stress arises from the fear of losing one’s home. The most common root cause of mortgage arrears is inability to pay caused by a reduction in income arising from loss of employment or reduced working hours or reduced pay rates. It can also be caused or aggravated by increases in mortgage interest rates and living costs. In a minority of cases, lifestyle may be a significant factor with addictions such as drink, drugs or gambling resulting in missed or late payments and ultimately mortgage arrears.
It is important to do something about arrears and not to bury one’s head in the sand. Taking action will usually help to reduce stress as well and if the arrears have arisen because of lifestyle choice, then the debtor may have possible correction of the problem within their grasp, provided they can overcome or control their addiction.
In most cases however, the borrower has little or no control of the problem insofar as the root cause was always out of their control. We will look briefly at what actions they may take to alleviate or resolve the problem. The first thing to do is to talk to an adviser. There are various organisations both charitable and commercial which offer free advice. Take advantage of that. Assemble in so far as you can the relevant paperwork and bring it along. Wage slips, bank statements, mortgage statements and details of your other debts such as credit cards, overdraft, store cards, loans, HP and so on will all help in the process of establishing just what you can afford to pay.
Secondly make an appointment to see your mortgage provider. It is in their interest to talk to you too and the fact that that you are already taking independent advice will show that you are in earnest about solving your problem. Your lender may even be able to suggest possible solutions for you. You really should have a goal of resuming payments – that is if you have stopped paying – as soon as possible, even if payment is less than the full amount due each month. In other words, pay what you can afford until you get a permanent resolution agreed.
You can get help to pay your mortgage. For example you may be eligible to get support for mortgage interest (SMI). This is a payment made by the Department of Work and Pensions to your lender which pays at least some of the interest on your mortgage. You may be eligible for SMI if you or your partner is already getting one of these benefits: Income Support, income-based Jobseeker’s Allowance (JSA), income-based Employment and Support Allowance (ESA) or Pension Credit. Even if you are not getting any of these benefits you may still get SMI if you have an ‘underlying entitlement’. If you make a claim for SMI, you should tell your lender as soon as possible and they should refrain from taking you to court once they know you have made a claim.
You may also be able to increase your income by ensuring that you are getting all the benefits and extra help you might be entitled to. Councils in the UK have funds for helping to prevent repossessions. Ask your council about getting help from this fund. Check also whether you have mortgage payment protection insurance. If you do, you may be able to make a claim.
At the end of the day you will need to arrange and agree with your lender how you will pay off the mortgage arrears. If you can afford to pay the regular monthly payment as well as bit off the arrears each month, then try to reach agreement with your lender to do this, being careful not to over commit. Ask for more time if you need it if your lender is seeking to have the arrears paid over a particular length of time and you cannot afford to do that.
One option that may be open to you, provide your lender agrees, is to ‘capitalise’ the arrears. This simply means adding the amount of arrears that you owe to the total mortgage and repaying the arrears over the life of the mortgage. It means that your monthly payments will go up.
The type of mortgage that you have may also provide an opportunity to resolve your problem. For instance, if you have an endowment mortgage, you may be able to change it to a repayment mortgage and thereby release some cash. This course of action needs careful consideration and you should take independent advice before proceeding. There may be a cost in getting such advice. If you do cancel your endowment policy you should ask your lender about taking out mortgage protection insurance which would pay off your mortgage in the event of your death and you could also consider asking your lender to extend the term of your mortgage, thus reducing the monthly payments.
Regardless of the type of mortgage you have, you can always ask your provider to extend the term of the mortgage. Many mortgages have a standard term of twenty five years. Perhaps you have already made payments for five years. Now if you could extend the term back out to twenty five or even thirty years, your monthly payment could be reduced significantly, perhaps allowing you to pay off the arrears relatively quickly. In considering such a request, your provider will take into account your current age, your income and your prospects to ensure that the new extended term does not unduly encroach on your retirement, when the expectation is that your income will decrease significantly and your mortgage may become unaffordable.
Other options which may be available to you include switching from a repayment mortgage to an interest only mortgage. Such an arrangement is usually short term and may be agreed by lenders only on a temporary basis.
In our next article, we will look at some aspects of voluntary and enforced repossession and how to cope with losing your home.