If you have missed any payments on your loans you need to check if they are secured or unsecured on your home. If they are secured then they need to be dealt with urgently as the lender has the power to take possession of your property if they are not paid. We are going to discuss secured loans and what to do if you miss these payments.
Contact your lender
The first thing you do is you need to contact your lender to confirm the amount you owe and the steps you intend to take to pay them back. Many lenders would rather put in place a payment plan than go through a property repossession but there needs to be dialogue between the lender and the mortgage holder. It is very tempting (and common) for people in arrears to bury their heads in the sand rather than face up to the situation but the earlier steps are taken the better it will be.
Most UK lenders are regulated by the Financial Services Authority (FSA) who have rules saying lenders must deal fairly with any customer who is in arrears. In practical terms each lender must:
- have a written policy on how to deal with customers in arrears;
- allow customers to set up a payment plans which is realistic
- send out regular information about the arrears;
- not put pressure on customers through too many calls or letters.
If you took out a mortgage before 31st October 2004 and you think you are being treated unfairly by a lender, you can complain to The Financial Ombudsman Service (0845 080 1800). If you took out a mortgage after this date, then FSA rules apply and it is best to contact them directly (0845 606 1234).
Help towards paying your mortgage
If you need help towards paying your mortgage then there are a number of options you can consider.
Check that you are not entitled to income support, child benefit, pension credit, jobseekers allowance, working tax credit or child tax credit. Contact your local Department for Work and Pensions office or local advice centre for more information.
Check to see if your mortgage has payment protection insurance. If it has but you are still refused this contact the national debt helpline.
Check to see if your lender will buy your home and rent it back to you (these are pretty rare and known as mortgage rescue schemes).
Check rent back schemes by private companies as they can buy your home and rent it back to you (similar to the mortgage rescue schemes). They can often offer you the option to buy back your home at a later date when you have overcome any debt problems. Please check below for links to one such specialist company.
Arranging to pay off the arrears
Do not arrange to borrow more money to pay off your existing debts as this will make matters worse in the long term. Switching all loans to a cheaper interest rate may be a sensible solution but increasing your debts is not.
In order to pay off arrears on secured loans you will usually have to pay extra monthly amounts to your lender. Lenders will sometimes ask for the arrears to be cleared over 12 to 24 months. Ask for a longer time to pay the arrears if you cannot afford to do this. If you cannot manage to clear the arrears as quickly as your lender wants, start paying the amount you have offered anyway and explain why you can only afford this, particularly if there are special circumstances (i.e. long-term illness, birth of a child, relationship breakdown or unemployment).
Other options to consider
- Change from an endowment mortgage to repayment/interest only mortgage
- Change from repayment mortgage to interest only to reduce monthly payments.
- Try and move onto a cheaper rate with your existing lender or move to a different lender.
What if I still can not afford my mortgage or arrears payments?
- Look for ways to increase your income (i.e. by renting out a room in the property) or reduce your other outgoings.
- Sell and rent back your home from a specialist rent back firm. Often the rent charged is less than previous mortgage payments.
- Sell your home and move to a cheaper home that you can afford.
What if they threaten to evict me?
If you have been given a court order (via the post) you will normally have 28 days notice of the hearing date. This court order does not mean you will be evicted on the date of the court hearing. This is just so the court can hear the case for and against your eviction. In order to understand the court hearing and preparation required we suggest you contact your local citizens advice bureau or national debt helpline.
Being in mortgage arrears is an incredibly difficult time for those experiencing them but it is very important to take action at the first instance of arrears. Unfortunately, many people get evicted unnecessarily by ignoring their lenders threats due to the stress of facing up to the situation.
