Negotiating with the lender

If a borrower is experiencing financial difficulties and is unable to make his/her full mortgage repayments, s/he should contact his/her lender as soon as possible. The lender should deal with the borrower's situation 'sympathetically and positively'. The lender and borrower should then develop a plan to deal with the problem that is compatible with the interests of both the lender and the borrower. [1]

Both the Council of Mortgage Lenders and Financial Services Authority (FSA) state that repossession should only be used as a last resort, if the lender and borrower are unable to reach a satisfactory agreement. [2]

Whilst negotiating with the lender, it is important that the borrower continues to make regular payments to demonstrate to the lender that the situation is under control, even if these payments do not meet the minimum monthly payments.

When proposing a repayment plan, the borrower should offer only what s/he can reasonably afford. Again, it is not always necessary to meet the lender's requirements with regard to minimum monthly payments. It is better to offer a realistic amount, with potential for increased payments in the future, than to offer a higher amount than can be sustained. Any agreements should be confirmed in writing by the lender.

The lender should concentrate on controlling the arrears and ask for concessions that will make the mortgage more manageable. The borrower should explain her/his intention to co-operate and offer, in addition to the financial arrangements, review periods in case there are difficulties.

A series of proposals could be put forward, with a request for concessions, for the lender's consideration. These can be imaginative and innovative providing that they are realistic and meet the aim of repaying the mortgage within a reasonable period of time. Wherever possible these proposals should be in writing. The pages on increasing income, reducing arrears and cutting mortgage costs suggest ways in which mortgage costs can be reduced and arrears controlled.

If there is equity value in the house but no prospect of resuming the mortgage payments it will be important to stall for time to find a buyer for or allow a sale of the property at the best possible price. The borrower should also be advised about the mortgage to rent and mortgage to shared equity.

In October 2010 the Home Owner and Debtor Protection (2010) act brought in a new duty on lenders to complete pre-action requirements before they can consider taking the case to court. This means that they must give the borrower clear information about the terms of the lending agreement; such as the amount that is owed including any arrears. The lender must also take reasonable steps to avoid repossession by agreeing with the borrower arrangements for future payments under the lending agreement.

The lender should not take the borrower to court where they are taking reasonable steps to adhere to the lending agreement. The lender must also give the borrower information on how to get advice on managing their debts and persuade them to contact their local authority.