Over the past two years, thousands of people have experienced a loss of income due to COVID-19. Whether temporary, for example, during a period of furlough when the government only covered 80% of a person’s salary, or permanent, such as a business collapsing — the impact has been devastating for many.
The situation has been exacerbated by a sharp rise in the cost of living in 2022. A recent BBC news article revealed that the cost of living in the UK has hit a 30-year high, with energy, fuel and food prices increasing by 5.5%. Inflation is rising faster than wages and is set to continue climbing for the foreseeable future.
So, what should you do if you cannot pay your mortgage?
1. Talk to Your Lender
Don’t wait for your mortgage lender to contact you after a missed payment. Get in touch as soon as you start experiencing financial difficulties. Many lenders have specialist support teams to help people struggling to repay their mortgages. The sooner your provider is aware of a problem, the sooner they can offer help and support.
The Financial Conduct Authority (FCA) regulates all mortgage lenders, and requires them to comply with the Mortgage Conduct of Business (MCOB) rules. These rules apply to any mortgage taken out after 31 October 2004. Under the MCOB, your lender must exhaust all avenues of resolving repayment issues before they can pursue repossession of a property. This might include creating a “repayment plan,” whereby the lender agrees to reduce payments for a fixed period to allow you to get back on track financially, or they might extend the term of your loan to reduce the monthly repayments.
It’s also worth knowing that a missed payment could negatively impact your credit score, so speak to your lender before this happens.
2. Reach Out for Free Advice
These organisations will help you evaluate your finances, draw up a budget and suggest potential short-term solutions to your mortgage lender. Whatever your situation, obtaining objective, professional advice and support are invaluable. It can make the difference between keeping your home and having it repossessed.
3. Research Your Eligibility for the SMI Scheme
The government’s Support for Mortgage Interest (SMI) scheme provides help with mortgage interest payments for people in receipt of Income Support, Pension Credit, Income-based Jobseeker’s Allowance and Income-related Employment and Support Allowance.
If you are eligible, the SMI scheme can help you cover the interest on your mortgage or on loans you have taken out for certain home improvements.
Any money granted under the SMI scheme is a loan that must be repaid when you sell your property unless you transfer the loan to your new home.
4. Plan Your Budget
If you’re struggling to juggle the bills and paying the mortgage each month has become a stretch, it’s time to review your income and expenditures. Is there anywhere you can cut costs? Can you boost your income in any way, even if only temporarily?
It’s worth checking if you are entitled to any benefits from the government. These might top up your income just enough to enable you to keep up with the monthly mortgage payments.
5. Suggest a Solution to Your Mortgage Lender
Once you have spoken to your mortgage provider and explained your situation, and sought out free financial advice, you should be in a strong position to suggest a solution.
Your lender must understand the reasons for your current struggles — are these likely to be short or long-term? A temporary drop in income due to a fixed period of reduced work hours is one thing, a health condition that will prevent you from seeking employment indefinitely is another. It is in no one’s interests for you to remain in a position you can never get out of, accruing more debt. Being honest with the lender about your financial situation will help you reach the best solution together. Suggestions might include:
- Taking a break from repayments for a fixed period
- Increasing the term of your mortgage to reduce monthly payments
- Reduce payments for a fixed period
- Switch to a more affordable mortgage
- Negotiate a lower interest rate
- Capitalise the arrears — add any late payments to the mortgage balance
- Switch to an interest-only mortgage.
To be in with the best chance of reaching an agreement with your lender, be sure to let them know:
- Why you are struggling to make your payments
- How much you can afford to pay each month
- How you plan to pay back any arrears
- Details of your finances and a planned budget
- A timeline for showing progress, including review dates,
What to Do If You’re Facing Repossession
If you’ve tried all of the above and fail to reach an agreement with your mortgage lender, they can initiate “possession action” to trigger the process of repossessing your home.
If the case makes it to court, you must attend the hearing, or there is a risk the courts will issue an outright possession order. If this happens, the lender will have the legal right to repossess your home, and you must vacate within four weeks.
A better outcome would be a “suspended order”. This allows you to stay in your home as long as you keep up with the agreed schedule of payments. Typically, this means paying your regular monthly mortgage payment plus a fixed sum until any arrears are cleared.
If your home is repossessed, the lender will sell your property and recoup any money owed for arrears, interest, selling costs and the remaining mortgage balance. If anything is left after covering these costs, this sum will be passed on to you.
Sell Your House Fast
If your financial situation is unlikely to improve, no matter how lenient the mortgage lender is, selling up and clearing your debts may be the best option.
With arrears racking up and court action underway, you don’t have time to wait for a traditional on-market sale with an estate agent — this takes an average of 4.2 months in the UK, but could take a lot longer if your home is in poor condition or located in an unpopular area.
House Buyer Bureau is a genuine cash house buying company. We have the funds ready to buy your home in as little as 7-days — just ask us for proof! Get in touch with our friendly team of house buying experts today to discuss your needs and get a free, no-obligation cash offer.
If you accept our offer, we’ll take care of everything, and what’s more, there are no estate agents or legal fees* to pay. Reduce the stress and expense of selling, pay off your debts fast and start afresh somewhere new.
* If you use one of our recommended solicitors.