What to do if you can’t pay your mortgage

what to do if you can't pay your mortgage

Struggling to pay your mortgage or already behind on your monthly payments?

The majority of us take on a mortgage with the intention to pay it off. 

But what happens if circumstances change and you find yourself in financial difficulties? What do you do if you can’t pay your mortgage?

There are several ways you might find yourself in this situation, whether you’ve lost your job, illness/accident or death.

If you can’t afford your next payment you need to take advice and action quickly to avoid any long-term damage that could lead to you losing your home. 

Find out the steps you can take if you’re struggling.

What happens if I can’t pay my mortgage?

In extreme circumstances, if you can’t pay your mortgage your lender can repossess your property. This is a last resort once every avenue is exhausted. 

So what do you do if you can’t pay your mortgage?

  1. The first thing you should always do if you’re struggling to make repayments on your mortgage is to contact your lender. Regardless of who they are, your lender can offer and give you support. The sooner you contact them, the sooner they can offer support. Generally, they’ll assess your current finances including your outgoings to work out whether your issues are likely to be short or long-term. 
  1. Assess your situation. What’s your budget, what can you reschedule, such as your unsecured loans, credit cards etc. You’ll also want to check if you’re eligible for support in the form of benefits or tax credits.
  1. Stay in contact with your lender to keep them up-to-date with your financial situation. 
  1. Working with your lender you’ll be offered tailored support. Showing you are willing to pay what you can will work in your favour, especially as your mortgage payment is a priority debt and should be paid before any other debts you have. 
  1. Make sure you explore all your options and find the right option for you. 
  1. Take advice from trusted sources. Not only can you get advice from your lender but you can get free independent advice from other organisations. 

What are my options if I can’t pay my mortgage?

Your lender could offer you the following options if you can’t afford to pay your mortgage:

  • A temporary mortgage payment holiday – pausing your repayments for a set period. The missed payments will be added to the loan.
  • A temporary switch to interest-only payments – you’ll just pay the interest on your mortgage rather than the capital amount for a set period. Again, missed payments will be added on to your loan.
  • Extending the term of your mortgage to reduce your monthly payments – a longer-term option which will probably only be offered if you have a stable income.

Depending on your circumstances, your lender might also offer you the option to:

  • Reduce the amount you pay for a short period – you might be able to pay less towards your mortgage for the next few months
  • Reduce your monthly interest payments – you might be able to negotiate a lower interest rate if you have equity in your property 
  • Switch to a cheaper mortgage – you might be able to reduce your payments by changing to a fixed-rate mortgage.

What help can I get if I can’t pay my mortgage?

As we said, not only can you seek help from your lender but you can also seek advice from other organisations like an independent financial adviser, Citizens Advice, StepChange or the National Debtline.

What help you can get though will very much depend on your circumstances. 

Examples of what help you could get range from:

  • Working out what you can afford.
  • Check if you have insurance.
  • Check if you can reduce your costs.
  • Check if you can increase your income.
  • Schemes that help with mortgage payments.

If you took out your mortgage from 31 October 2004 onwards, your mortgage lender has to follow the Financial Conduct Authority (FCA) rules when dealing with mortgage arrears.

The rules say that your mortgage lender must treat you fairly and give you a reasonable chance to make arrangements to pay off the arrears if you’re able to. It must consider any reasonable request from you to change when or how you pay your mortgage. If your mortgage was taken out before October 2004 a lender has to abide by the code that existed then.

That means that your lender is there to work with you, not against you. It’s in their best interest and they have to show they’ve made every possible attempt to help you. 

If you’ve only missed one payment and will be able to make future ones, lenders could allow you to catch up by adding more onto those future payments until your debt is cleared. Otherwise, you may be allowed to add your arrears to the overall amount of your loan and pay the arrears over the terms of the loan. 

Furthermore, if you’ve lost your job or your income unexpectedly is to check if you have mortgage payment protection on your insurance. You’ll need to check your terms and conditions carefully though to see if you are covered. 

Is the government going to help with mortgages?

If you’re struggling to meet mortgage payments you may be able to get support from the Government’s Support for Mortgage Interest scheme. 

The scheme is open to those claiming benefits:

  • Income-related Employment and Support Allowance
  • Income-based Jobseeker’s Allowance
  • Income Support
  • Universal Credit
  • Pension Credit

The support from this scheme is paid as a loan, repayable on the sale of your home (or transfer of ownership) or death. 

The scheme means the Government will pay the interest on your mortgage loan on up to £200,000 or £100,000 if you’re receiving Pension Credit (there is no help available to repay the capital of the loan). 

They will use a standard interest rate to calculate the amount which is currently calculated at 2.09%.

In addition to this:

  • There are no fees to set up the loan.
  • You don’t have to get a credit check to get the loan and taking it won’t usually affect your credit rating.
  • SMI is usually cheaper than other credit options because interest charges are low.
  • It is more flexible than a normal loan as you don’t have to make regular repayments – unless you want to.
  • Interest will be added to the total amount you owe until the loan is paid back or written off.
  • You won’t get a loan automatically – you have to choose to take one out.
  • The SMI payment is usually made directly to your mortgage lender.
  • SMI can be backdated to the date that you became eligible to claim it without any restrictions.
  • The loan is secured against your home. When you sell your home or transfer the ownership of it to someone else, you must pay back the loan out of any equity left over when your mortgage is repaid. 

Speaking to your mortgage lender when your circumstances change is paramount. 

However, if you’re not sure what options may be available to you or you have any queries about the above options speak to a specialist mortgage broker. They will be able to help you with understanding what your options may be based on your circumstances.  

Contact us at Online Mortgage Guru at 0345 3669799 or email us via info@theonlinemortgageguru.co.uk and we will put you in touch with a suitable specialist to handle your enquiry who has experience handling cases such as yours. 

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