Dealing with mortgage arrears
Keeping up with your mortgage payments should be your top financial priority. If your home is repossessed and you are evicted because of payment problems, you could become homeless.
If you fall behind on your mortgage payments, you need to take action straight away. Try to resolve the problem quickly or you might end up with a larger debt that is harder to manage. Many lenders charge penalty fees if you miss payments. The sooner you deal with the situation, the more options you will have, and less chance of losing your home.
Make your mortgage your top priority
If you fail to keep up with the repayments on your mortgage or secured loan, your lender can take legal action against you to repossess and sell your home in order to recover the money owed. Even if you keep up to date with your mortgage, you could lose your home if you fall behind with payments to a secured loan.
Bear in mind that if you have your current account, credit card and other accounts with the same bank, the bank is usually within its rights to transfer money from an account that's in credit to another account that's in debt. This is known as 'setting off' debt. Therefore it's a good idea to set up an account with another bank to keep your mortgage money in. This will prevent your bank from taking money from your account that you were setting aside to pay your mortgage and using it to pay off a non-priority debt such as a credit card.
You can find out more about setting off at MoneySavingExpert.
Pay as much as you can
If you're having financial problems, keep paying as much as you can afford. This will help to stop your arrears from rising too quickly. It will also show your lender that you are trying to tackle the problem. If you have more than one loan secured on your home, don't make payments to one loan and not another, it's better to pay something towards both.
Get help to tackle the problem
Don't try to tackle the problem on your own. An adviser at a housing aid centre, Citizens Advice Bureau or local money advice centre will be able to:
- go through your options with you
- help you find a realistic and affordable solution
- help you negotiate with your lender.
Talk to your lender
If you're having difficulty paying your mortgage (or think that you will have, for example because you have lost your job) it's important that you talk to your lender as soon as possible. Don't be put off because you think your situation is hopeless. There is often a solution. If you haven't yet decided what to do about the problem, explain to your lender that you are going to get specialist advice about your options.
If you don't want to phone your lender or can't get through to the right person, you can write to them using our sample letter to your lender or by creating your own letter to your lender with our online tool.
Assess your situation
The best way for you to sort out your payment problem will depend on your individual circumstances. If you want to stay in your home, you will need to find a way of stopping your arrears from rising while keeping up with your future payments. You also need to pay off any arrears that have built up so far.
First of all, you need to assess whether your problems are likely to be short term (for example, if you have lost your job, but will be getting a new job soon) or long term (for example, if you have developed a chronic illness or have split up with your partner and they are no longer contributing towards the mortgage).
Check whether you have mortgage payment protection insurance
If you have mortgage payment protection insurance this would cover your mortgage repayments for a fixed period if you were unable to work because of an illness or disability, accident or redundancy. You may have taken this out when you took your mortgage out.
If you have this type of insurance (which is different from a mortgage indemnity guarantee or life insurance), check the policy carefully. Many policies will not pay out until a few months after you are unable to work and then will only cover repayments for a year or two. You may need to make other arrangements to cover any payments that are not covered by your insurance.
Reduce your outgoings
Look at ways you can reduce your outgoings, for example by cancelling subscriptions (such as gym memberships, satellite TV subscriptions, etc), economising on shopping and leisure activities, or switching to a cheaper provider of electricity, gas or telephone. The Consumer Credit Counselling Service website has advice on how to budget and save money, whilst you can investigate cheaper utility options at uSwitch.
Reduce your insurance costs
It may be possible to reduce your buildings insurance, contents insurance, life insurance and/or payment protection insurance. You can't stop your buildings insurance policy altogether (it's normally a condition of your mortgage) but you may be able to find a cheaper policy. You may be able to get cheaper contents insurance, life insurance and mortgage protection insurance by shopping around. There are many useful websites that allow you to compare the cost of different insurance policies. For starters, try:
Try to keep paying your insurance premiums. If you don't, your policy could be void and you could risk:
- your family losing their home if anything happens to you
- not being able to replace your belongings if they are uninsured
- not having the safety net of mortgage payment protection if your financial circumstances do not improve.
Reduce your mortgage payments
Although you will eventually have to pay back the whole of your mortgage, it might be possible for you to reduce the size of your monthly mortgage payment so that it is more affordable.
Increase your income
It may be possible to increase your income by:
- working extra hours, or taking on additional work
- applying for benefits or tax credits
- applying for help to pay mortgage interest
- renting out a room or letting your whole home.
The National Debtline website has a self-help pack listing ways to increase your income and advice on budgeting.
Consider switching mortgages
You may be able to save money by switching to a different kind of mortgage with the same lender or a different lender. However, this may prove difficult if you have already built up arrears. In addition, you may have to pay a redemption penalty, although it may be possible to add any fees or redemption penalties to your mortgage and pay them off over the rest of your mortgage term.
If you are thinking of switching to another mortgage, make sure you will be able to afford the repayments. Bear in mind that you may have to pay an arrangement fee and mortgage indemnity insurance.
Negotiate a payment plan with your lender
If you can afford to keep up with your mortgage payments and pay extra towards the arrears, you may be able to negotiate a repayment plan with your lender .
Most lenders will expect you to come up with your own plans for paying off your mortgage, rather than suggesting to you what you should do. You need to show that you will be able to pay off any arrears you have and keep up with future payments until your mortgage is completely paid off. If you haven't worked out your options yet, it's still important to speak to your lender as soon as possible, to let them know that you are taking action to put things right.
If none of these solutions proves possible, or if you want to leave your home, there are still some options open to you:
- You could decide to sell your home voluntarily and move somewhere more affordable.
- You may be eligible for the Scottish Government's mortgage to rent or mortgage to shared equity schemes, or another mortgage rescue scheme operated by a local housing association. However, be very wary of mortgage rescue schemes (or 'sale and rent back' schemes) operated by private companies.
- You may be tempted to give your keys to your mortgage lender, but this will probably increase your debts.