What if you do miss a mortgage payment, what should you do? If you miss a mortgage repayment and have payments overdue, you're technically in what lenders call 'arrears'.
If you find yourself in this situation it's important that you make contact with your lender, don't wait to hear from them first. Making contact is the first step to getting back on track and will minimise any impact.
If you don't communicate with your lender you'll automatically 'trigger' the arrears process and start the countdown to repossession. So reach out to your lender, they'll want to help you find a solution and negotiate a new repayment strategy.
What is the arrears process?
If you fall into mortgage arrears then within the first 15 days your lender must:-
• List the payments you've missed
• Tell you the total arrears amount
• Provide the amount outstanding on your mortgage
• Give you a reasonable amount of time to make any overdue payments
• Tell you what charges you incur because of missed payments
How to avoid getting into mortgage arrears
• Create a budget to organise your money. Identify areas to cut back on and use savings to build a buffer to cover mortgage repayments.
• List all income and essential outgoings. Prioritise mortgage repayments over unsecured debts like credit cards because failing to pay the latter doesn't put your home at risk.
• Use bank statements and receipts to see your actual spending. Decide what non-essential spending to cut back on, cancel unused direct debits and find cheaper alternatives for essential spending like food and heating.
• Once you've done this, you'll know what you can put towards your mortgage arrears.
How to talk to lenders about mortgage arrears
If you're behind on mortgage repayments then we can't stress enough how important it is to get ahead of things.
The sooner you talk to your provider and explain the situation, the sooner you can try and negotiate a repayment plan that makes things feel a bit more achievable.
You might even be eligible for government help, but to claim you'll need to speak to your provider first.
You can try presenting these solutions to your lender
• If you miss one payment, suggest repaying it over three months.
• Ask if you can add the arrears to your total debt and pay it back over the lifetime of your mortgage. This could cost you more because you'll be paying interest.
• Ask if you can pay interest-only each month for an agreed period.
• Ask for a payment holiday for a few months to give you time to get your finances sorted.
• See if you can extend the mortgage term to reduce your monthly payment to make it more affordable. This will depend on your age and other criteria.
• Avoid taking out an extra short-term loan to repay mortgage arrears because this could be more expensive and increase your debts.
What help is available?
You might be entitled to government help. They won't pay your mortgage automatically but a scheme called Support for Mortgage Interest (SMI) will pay the mortgage interest on the first £200,000 of your outstanding mortgage for the period you can't make the payments for you via a loan if you're eligible.
To be eligible for SMI you need to be receiving Income Support, Jobseeker's Allowance, Universal Credit or Pension Credit, so if you lose your job apply for benefits straightaway. Unfortunately, you won't qualify if you've £16,000+ in savings or if you own another residential property.
You have to repay the loan when you sell the house or pass it on to someone else. Interest is 1.5%. Once you start working again, the loan stops.
Getting into mortgage arrears can be scary and unchartered territory, but there are some simple, practical steps you can take to prevent the situation from going any further.
If you’ve missed three or more payments and are worried about repossession then here are some things you can do to try and prevent it.