What happens if I can't pay my mortgage?
The majority of us will take on a mortgage with the intention to pay it off, bit by bit. But as we all know, over time, your circumstances can change and sometimes you can find yourself in financial difficulty which could result in you struggling to pay your mortgage. If you’re currently thinking, ‘Help, I can’t pay my mortgage!’, you can start by reading this guide to hopefully help get you back on the straight and narrow, or at least point you in the right direction.
Speak to your mortgage lender
As soon as you realise you’re struggling, or are soon going to struggle to keep up with your monthly repayments, the first thing to do is speak to your mortgage lender. Your lender will be able to talk to you and come up with a new plan for how you can better manage your payments, whether that’s extending the mortgage term, changing how often you make a payment etc.
It’s important you know that your lender is working with you, not against you. It’s in their best interest to keep the roof over your head and they have to show that they’ve made every possible attempt to help you, so don’t worry, just pick up the phone and talk to them.
What if you’ve already missed a payment?
If you’ve already missed one or more of your mortgage payments, this will be reported as a late payment (also known as a delinquency) and you will be classed as ‘in mortgage arrears’. The late payment will remain on your record for several years and will negatively affect your credit score going forward.
Do you have insurance cover?
If you already have Mortgage Protection Payment Insurance (MPPI), now is the time to use it. This will pay your repayments off in full, in the event of you being made redundant, having an accident that prevents you from working or long-term sickness. However, MPPI might not be the right option for you, so it’s worth looking into your circumstances. For instance, do you get a good redundancy package at your workplace, is your sick pay generous?
There are lots of different types of insurances, so if you’re reading this thinking you don’t have MPPI but you know you have something very similar, it may be that you have something that covers illness but not unemployment. If you’re not sure which cover you have, you can always check with your lender or mortgage adviser.
Can the Government help?
Depending on your personal circumstances, you might be able to get help from the Government towards your repayments. They won’t ever be able to pay off the full amount, but there is something called Support for Mortgage Interest (SMI) where they can pay off the interest on the repayments for you, but you’ll still have to find the rest. You can use the Gov.UK benefits calculator to see if you’re eligible. It’s worth checking what other benefits you might be able to apply for, as after all, every penny is going to help you pay your mortgage!
Remortgaging to a better deal
Some people prefer to see if they can remortgage to save money or to perhaps switch to an interest-only mortgage which SMI would cover. However, this depends on the current mortgage deal you have and whether switching is an option for you, but your mortgage adviser will be able to run through all of this with you. If you aren’t able to remortgage and you know your financial situation won’t improve in the long-term, you could consider selling your house and buying a cheaper one, or moving into rented accommodation.
What is home repossession?
If none of the options above can help you and you continue to not meet your mortgage repayments, then worst-case scenario, your home could be repossessed.
If your lender has tried to help you but all options fail, or perhaps you haven’t let them know about your situation at all, then your lender has the right to take your home from you. Often, the house will be put up for auction in order to sell it as quickly as possible. If they don’t get enough money from it to pay your outstanding mortgage balance off, then unfortunately, you will continue to be chased for the rest of the money. If your home is repossessed, your name will be permanently on a register which will make it extremely hard to ever get a mortgage again.
If you can see your situation heading down the repossession route, it’s best to consider selling the house yourself (as we mentioned earlier), as you’re likely to get more money for it then the lender will at an auction. Once it’s sold, you can then move into a cheaper property, or rented housing.
Our preferred choice, and no doubt yours too, would be to avoid finding yourself in arrears in the first place. How can you do this? By taking a closer look at your finances.
Look at how much money you have coming in a month and make a list of all the outgoings you can possibly think of. Obviously, bills are bills and will always need to be paid, but hopefully, this will highlight any flexible outgoings you have and areas where you could potentially cut back on, for instance socialising or food shopping. Using a budget planner can certainly help get you started with this.
Top tips to avoid getting into arrears
1. Additional debts to pay off the mortgage - Taking on more debt in order to pay off debt is not something we ever recommend you do. It isn’t beneficial to you in the long-run, plus these types of loans can be very expensive and are often secured against your home.
2. Selling your house with a plan - Do not sell your house if you don’t already have a back-up plan of somewhere else to live. Worst-case scenario, you could end up homeless.
3. Giving your keys back - The house is still technically yours and therefore you will still be responsible for making the repayments before the house is sold. Plus, if there is still an outstanding balance once the house is sold, you’ll be accountable for that too.
So, the first step we recommend is to get in touch with your lender, or you could get in touch with a debt counselling service to help advise you on your situation. Good luck!