If you are feeling the threat of repossession you need to do everything you can to avoid it. Heres how to ensure you stay secure in your home.
If youre starting to struggle with mortgage repayments you need to face up to the problem as soon as possible. Repossession isnt something that lenders take lightly so the earlier you take action, the less likely youll be to lose your home.
Heres what you need to do if youre finding it difficult to pay your mortgage:
1. Cut back & write a budget
Cutting back on life’s luxuries may be painful but it will be worthwhile if it means you can avoid losing your home.
You should review each area of your expenditure including your other debts; could you save money on your insurance policies or utility bills? Do you really need digital TV?
A good way to find out exactly where your money is going is to draw up a budget. If you’re not sure how to go about doing this then read our guide How to write a budget and follow our Goal I want to take control of my finances to find out how.
2. Raise extra income
If you can’t cut back what you’re paying out there may be some ways to boost the money you have coming in.
If you or a partner can increase your overtime at work then this is one of the easiest ways to earn some extra cash.
Another option is renting out a spare room to a lodger, while this may not be ideal the income could make a significant difference when it comes to paying your mortgage each month.
Read our Goal I want to earn extra money for more practical suggestions on how you can increase your income.
If your financial troubles are down to loss of employment then you should check the terms and conditions of any income protection policy you have in place to see whether youre eligible to make a claim.
3. Speak to your lender
If you are struggling to pay for your mortgage the sooner you speak to your lender, the greater the chance they will be willing and able to help.
Its likely that youll be presented with 2 options that could ease the pressure on your monthly repayments:
Take a payment holiday
In certain circumstances you may be able to take a break from paying your mortgage for a number of months without it being classed as defaulting. This is commonly referred to as a payment holiday and it can buy you time to get your finances back in order. You do, however, need to get your lenders approval for this first and will be expected to resume payments as soon as the agreed period ends.
However, taking a payment holiday isnt an easy option as you will still be charged interest on your mortgage even though youre not making repayments. This is likely to mean you owe, and repay more in the long run.
Despite this a payment holiday may be a workable solution if youre struggling now but are confident that you’ll be able to afford your monthly repayments in a number of months. However, if you feel you will struggle again once it comes to an end you may need to seek a more definitive solution.
Renegotiate your mortgage
If you feel that paying your mortgage at its current level may prove to be a more long term problem then you should consider renegotiating your mortgage.
You may be able to extend the term of your mortgage to reduce your monthly repayments, although this is likely to mean your home costs you significantly more overall.
Alternatively, if you are on your provider’s standard variable rate you may be able to reduce your monthly payments by taking out a lower-cost fixed rate mortgage deal. You will need to weigh the upfront costs against the long term benefits though as you may have to pay a product fee or other penalties depending on your situation.
Either way you need to make sure that switching makes financial sense before committing.
Remember that defaulting on your mortgage without speaking to you lender will mean theyre less likely to be understanding of your situation and flexible with your repayments. So whichever option you want to pursue, speaking with your lender is essential if youre struggling.
4. Prioritise your mortgage
If you are struggling to cover your bills and mortgage repayments while trying to juggle several other debts you need to prioritise.
As a general rule your mortgage should be paid before anything else each month as its the difference between you keeping and losing your home.
Even if you are unable to afford your full mortgage repayment then you should pay off as much as you possibly can. This will help to show your lender that you are committed to make repayments and should encourage them to be more understanding.
Other unsecured debts can be viewed as less of an immediate concern although you will still need to contact your lenders as soon as possible if youre likely to default. However, paying them off in full may need to wait until you are on a more secure financial footing.
You can find more information on which debts should take priority over others by reading our guide How to Prioritise your Debts, however if you are in this situation you should speak to a debt charity like the Citizen’s Advice Bureau for advice on your specific circumstances.
5. Check your eligibility for mortgage support
There are several government-backed mortgage support schemes that could provide you with financial assistance if you are struggling to make repayments.
Support for Mortgage Interest
If you claim certain benefits and are struggling to make repayments you may be eligible for help through the Support for Mortgage Interest scheme (SMI).
The scheme can give you help paying the interest you are being charged on your mortgage, although it cant be used to pay off any of the capital itself.
The government specify a standard rate of interest that will be paid under this scheme, assistance is not dependent on the amount you are being charged by your bank.
You may be able to claim SMI if you are the homeowner and are claiming one of the following benefits:
- Income Support
- Income-based Jobseeker’s Allowance
- Income-related Employment and Support Allowance
- Pension Credit
Homeowners Mortgage Support
The Homeowners Mortgage Support scheme is open to individuals whose circumstances have temporarily changed to mean that they are now struggling to meet their mortgage repayments.
If you are relying on one income rather than two, have had your hours cut or can no longer work overtime then you could be eligible.
The scheme is offered by most mortgage lenders and can significantly reduce your monthly mortgage payments for up to 2 years or until you are able to carry on paying in full.
However, it’s worth noting that this scheme will simply defer your payments to a later date and is likely to mean you pay back more in the long-run.
You will also need to switch to an interest-only mortgage deal and agree to pay at least 30% of the interest owed on your mortgage each month or as much as you can afford.
Mortgage Rescue Support
If you are weeks away from having your home repossessed and your household includes someone deemed to have a ‘priority need’ then the Mortgage Rescue Scheme may be able to help.
People deemed to have a ‘priority need’ are a pregnant woman, dependent children or an individual who is vulnerable due to old age or physical or mental impairment.
Anyone wishing to access mortgage rescue support will also have to meet the following criteria:
- Household income below £60,000
- Do not own a second property
- Mortgage is worth less than 120% of your home
- Property value is below a certain threshold specified by your local authority
The Mortgage Rescue Scheme can offer a variety of different ‘rescue packages’ to stop your home being repossessed, including offering shared equity loans and mortgage to rent schemes.
There are a number of companies who offer to buy a part of or all of your home on a buy-to-rent agreement.
It’s important to remember that these companies are not charities so will be focused on making a profit from your situation and that ultimately if you look into this option you will no longer own all of your home.
There is also nothing to stop the company you sell to increasing your rent further down the line so you may find yourself paying more to live in your house in the long term without actually getting anything back.
If you are considering this type of scheme you should seek independent financial advice before agreeing to anything.
6. Attend all repossession hearings
If you miss several mortgage payments without contacting your lender, or fail to keep up renegotiated payments as agreed it’s likely that you will get a letter from your mortgage provider informing you of the time and date of a repossession hearing.
It is essential that you attend any and all repossession hearings, especially if you feel you can re-pay your arrears given the chance.
However, if things have reached this stage you should be speaking to a debt charity such as Citizens Advice Bureau as soon as possible for independent advice on your financial situation.
by Martin Lane