What happens if a homeowner stops paying their mortgage

If a homeowner stops paying their house mortgage, what happens next is mostly in the hands of the lender. When you miss a payment, they will contact you to remind you of your financial obligation and also their right to foreclose your home (although they may not include this in the initial letter). If you continue to miss payments (usually three), your lender will likely begin repossession proceedings. How they choose to do this, how long it takes, any additional repercussions of your failed payment and the lifelines offered, such as a payment plan — will vary depending on your circumstances and their policy.

Homeowners stop paying their mortgages for a wide range of reasons. Personal and financial circumstances change. Losing a job or relocating can put you in a bind. The housing market can plummet, meaning that many homeowners owe more than their property is worth.

Whatever the reason, missing a monthly payment is a decision you shouldn’t take lightly. Having a property repossessed can severely impact your credit, and it will make getting another home loan extremely difficult in the future.

Missing one or multiple mortgage payments doesn’t necessarily mean repossession is on the cards. But it’s crucial to recognise that forgoing payments will begin a process that can have long-lasting consequences for your finances and credit.

What Are Mortgage Arrears?

Technically your mortgage goes into arrears when you miss the first payment. Many lenders will offer a grace period of 15 days before contact, as there are any number of circumstances that can make homeowners miss a payment.

Even after this grace period, repossession proceedings — known as a possession action — won’t start immediately. The majority of lenders would much prefer to find a way for you to make your payments rather than go through the time and effort of repossessing your home, so it’s often the last resort. Therefore, most lenders won’t consider it until you have missed three months’ worth of mortgage payments, although some may postpone even further.

Are mortgages paid in arrears?

Yes, mortgages are generally paid in arrears, so each payment you make is for the previous month’s mortgage balance, not the upcoming one. So, the amount you pay in March is for your mortgage amount (principal) and interest for February.

Missing a payment can result in your mortgage being classified as “in arrears,” (although this can vary by lender). This can lead to increased fees, additional interest and, eventually, the start of repossession proceedings if payments aren’t made. If you’re having trouble making payments, it’s best to reach out to your lender sooner rather than later.

What Options are There if I Can’t Afford my Mortgage Payments?

Speak to your Mortgage Provider

Your first port of call is to speak with your mortgage lender to discuss your options. It’s in their interest to help you repay your mortgage, and they have an obligation to consider reasonable requests when it comes to how you make repayments. Some possible options are:

• Lengthening the term of your mortgage to make lower monthly repayments.
• Making temporary payment arrangements where you, with agreement from your lender, pay smaller monthly repayments as a sign of good faith that you are still keen to repay your mortgage but are currently having financial issues.
• Switching temporarily to an interest-only repayment plan.
• Taking a mortgage holiday; this may give you a break in your mortgage repayments for up to 6 months (based on your personal circumstances). It’s important to note, you will still accrue interest while on a mortgage holiday, so your outstanding balance and monthly payments will be higher after it ends than before it started.

Some lenders may offer more leniency or forgiveness than others, so it’s always best to explain your situation and ask what help they have available, and doing this in advance of a missed payment is better than afterwards.

Think about what you can realistically afford to repay before you call, by drawing up a monthly budget including your income and outgoings.

Seek Help from the Government

The government won’t help you with your mortgage payments, but you may be able to get Support for Mortgage Interest (SMI).This will cover the cost of your mortgage interest, but you’ll still have to pay the rest of the mortgage. If this isn’t feasible, you may need to discuss the possibility of switching to an interest-only mortgage temporarily.

If you are eligible for SMI, the government steps in and makes interest payments for the first £200,000 of your outstanding mortgage for the period in which you are unable to make payments. However, this is reduced to £100,000 if you receive Pension Credit.

Find out more about the repossession laws with our helpful guide!

Missing Payments Risks Your Home Being Repossessed

As mentioned above, if you have already missed a mortgage payment, then your mortgage is “in arrears”. At this point, the mortgage company will contact you to find out what’s going on. They will work with you to find a solution, for example, agreeing on a fixed period of lower mortgage payments to help you get back on track. The repossession process should only be triggered as a last resort.

If you are yet to miss a mortgage payment but fear this may soon be unavoidable, you must contact your lender ASAP, as they may be able to find a solution that suits you both. Delaying making contact and ignoring the problem will only make things worse and hinder your chance of finding a quick solution.

How Many Missed Mortgage Payments Before Repossession in the UK?

In the UK, property repossession generally begins after three missed mortgage payments (but this can vary depending on your lender’s policies). In most cases, mortgage lenders will prefer to work with borrowers to find an alternative way for the borrowers to make repayments rather than move straight to repossession, as it’s costly and time-consuming for all involved. Because of this, some lenders may delay repossession until four or more payments have been missed, especially if there’s a genuine effort from the homeowner to reach an arrangement.

Under the guidelines set by the Financial Conduct Authority (FCA), lenders must follow a protocol for dealing with mortgage arrears, known as the Pre-Action Protocol for Mortgage Arrears. This ensures lenders attempt to resolve the issue with the borrower through payment plans or temporary relief options before taking legal action.

The House Repossession Process

If you’re unable to work out a solution with your mortgage lender and they start the repossession process, it will look something like this:

• Your lender will contact you.

If you miss a payment, your lender will contact you, usually after around 15 days.

• Work with your lender to find a solution.

All mortgage providers are regulated by the Financial Conduct Authority (FCA), and they must comply with the Pre-Action Protocol for Mortgage Arrears. As such, the lender must try to find a solution for the borrower and only trigger repossession proceedings as a last resort.

• The lender triggers the repossession process.

The repossession process starts officially when the lender applies for a “possession order”. You will be sent all the relevant documents regarding the proceedings.

• You must attend the hearing.

If the case makes it to court, you must attend. Failure to do so could result in the court granting the lender the right to repossess your home without the opportunity for you to argue your case.

• A decision is made.

The court can either issue an outright order for repossession or a suspended order. The former requires the homeowner to vacate the property within four weeks, and the latter allows you to remain in your home, provided you comply with the schedule of payments provided.

If you’re facing repossession and need to sell your house fast, contact us. We can buy your property for cash in as little as 7-days, and there are no estate agents or legal fees to pay.

Selling Your Home Quickly Is a Viable Solution

If your financial situation shows no signs of improvement in the immediate future and you risk losing your home, a quick house sale is a very real and useful possibility that many people consider. A quick, guaranteed sale allows you to repay any money you owe to the mortgage lender and move into a property that suits your budget, or rented accommodation if necessary. It’s a quick and straightforward process that provides a debt-free fresh start.

House Buyer Bureau provides the best cash offer on the market. For quick cash sales, we typically pay 80% of the market value. Here are a few example figures to give you an idea of how much you could make.