Worried about your mortgage
- What you should do if you are having trouble paying your mortgage
- Government schemes to help with mortgage arrears
- What you should NOT do
- Sources of debt advice and assistance
- Debt following mortgage possession
If you are in this situation there are three steps you should follow:
- Tell your lender as soon as possible: your lender will be sympathetic and will provide as much assistance as possible.
- Get advice: there are organisations which offer free and independent money advice.
- Check the help available to you: your repayments may be covered by an insurance policy or you may be eligible for government benefits or schemes which could help you to stay in your home.
The Money Advice Service website provides advice and information on payment problems and avoiding repossession. Other sources of advice and information are listed at the bottom of this page.
Your first step: tell your lender
If you are having trouble paying your mortgage, or you think it will be a problem in the near future, you should tell your lender immediately. Your lender will be fair and work with you to find a repayment solution.
Some lenders have telephone helplines or debt counselling facilities to assist making contact. The sooner you contact your lender the better, so that action can be taken to deal with the difficulty.
If you can’t afford your full mortgage repayments you should talk to your lender and still pay what you can afford. This shows your lender you are committed to solving the problem and makes it easier for them to help you. There are several options that your lender may be able to consider including:
- Reducing your monthly payments by lengthening the term of the loan.
- Moving a repayment mortgage onto an interest-only basis, provided you understand you will not be paying anything off the actual mortgage.
- Adding arrears to the outstanding mortgage amount rather than seeking immediate payment.
- Accepting reduced payments for a short period of time until you are able to resume full payments and repay any arrears that build up as a result.
- Changing the way you make your payments, or the date you make them.
The earlier you make contact, the more options there are available to resolve the problem. However, these are short-term solutions and in the long-term a repayment problem will have to be resolved. Your lender will wish to stay in regular contact with you to keep up to date with any changes in your circumstances.
Each lender has a policy setting out how they will treat borrowers when their mortgage is in arrears. Your lender should provide you with information explaining how you can expect to be treated by them.
Your second step: get advice
There are a number of organisations which offer free and independent money advice. Their counsellors can help you assess your financial problems and advise the best course of action to solve them.
If you are worried about approaching your lender direct - or if you have multiple debts – these debt advice agencies can help you. Lenders will work with these agencies if they are acting on your behalf.
Debt advisers can also tell you about the government schemes to help homeowners and help you apply for them.
Your third step: check the options and help available to you
If you become unemployed, have an accident, or are too sick to be able to work, you should check whether you have a mortgage payment protection policy. This type of insurance would usually have been taken out at the same time as your mortgage and, if you have an eligible claim, will cover your mortgage repayments up to a period of 12 months or sometimes more.
The state benefits and schemes to help homeowners in difficulty have recently been strengthened. It is worthwhile seeking advice on whether you are eligible for any of the schemes or benefits listed below.
Income Support for Mortgage Interest
Income Support for Mortgage Interest (ISMI) helps homeowners on benefits with their mortgage interest payments provided that the mortgage was used to purchase the home or for work to maintain the property's fitness for occupation. It is available to people claiming:
- Income support
- Income based job seeker's allowance
- Income-related employment allowance
- Pension credit
There is an upper limit of £200,000 on the size of mortgage which ISMI will cover. Restrictions can be imposed if your housing costs are considered to be excessive. You cannot claim if you work 16 hours or more per week, or your partner works 24 hours or more, or if you have savings of over £16,000.
In addition to interest payments, ISMI may also cover ground rent or certain service charges, but it will not cover the capital part of your mortgage payments or the premiums on an endowment policy.
The timing of the assistance will depend on when you took out your mortgage, but usually you will start receiving assistance 13 weeks after the start of a claim. ISMI is normally paid direct to your mortgage lender and credited to your mortgage account every four weeks in arrears.
From 1 October, the standard rate at which SMI is paid will reduce from 6.08% to the Bank of England average mortgage rate of 3.63%. The standard rate will change when the Bank of England publishes an average mortgage rate which differs by 0.5% or more from that standard rate. If you are claiming income based job seeker's allowance, there is a two year time limit in which you can claim ISMI.
Homeowners Mortgage Support
Under the homeowners mortgage support scheme borrowers who are facing possession because of a large but temporary reduction in their income can defer part of their interest payments for up to two years. This will reduce your monthly payments but the money isn’t written off – the deferred payments are added on to the outstanding mortgage balance. So you will pay it back eventually, with interest.
The scheme is only offered through some lenders, you can check if your lender is involved in the scheme here on the directgov website
More information on Homeowner Mortgage Support is available here on the directgov website
Mortgage Rescue schemes are operated independently in England, Scotland, and Wales.
To find out if you are eligible for mortgage rescue or another form of assistance you should contact your local authority or Citizens Advice Bureau.
Mortgage Rescue in England
Mortgage rescue schemes in England are aimed at vulnerable households facing possession (families with children, the elderly, those with a disability or pregnant women). There are two forms:
Shared Equity – the housing association buys a stake of the equity in your property which reduces your monthly mortgage payments. You still remain the outright owner of the property; and
Mortgage to Rent – the housing association pays off your mortgage debt and you then becomes a tenant of the housing association, paying a rent you can afford.
Information on mortgage rescue schemes in England can be found on the Directgov website.
Mortgage Rescue in Scotland
If you are facing possession in Scotland you may be eligible for the mortgage to rent scheme - where the housing association buys your home and you to continue to live there as a tenant.
To apply, you must first get advice about your financial situation from either Citizens Advice, a debt advice service or other advice agency, a solicitor, or your local authority.
Information on the mortgage to rent scheme can be found on the Scottish Government website.
The Scottish Government recently announced an expansion of the Mortgage to Rent Scheme and a new Shared Equity Scheme which will start on 16 March 2009.
Mortgage Rescue in Wales
The mortgage rescue scheme in Wales take two forms:
- Shared Equity – the housing association buys a stake of the equity in your property which reduces your monthly mortgage payments. You still remain the outright owner of the property; and
- Mortgage to Rent – the housing association pays off your mortgage debt and you then becomes a tenant of the housing association, paying a rent you can afford.
Priority is given to families and people who live in specially adapted housing.
Information can be found on the Welsh Assembly website. To apply contact your local authority or the Welsh Assembly Government Housing Directorate Tel: 01685 729156 or 01685 729157, email: email@example.com.
Other benefits & tax credits
Working Tax Credit and Child Tax Credit Working Tax Credit and Child Tax Credit are administered by Her Majesty’s Revenue and Customs (HRMC). Please see the HMRC website for further information or call 0845 300 3900.
The Council Tax Benefit is available to help people on a low income with their council tax bills. For further details visit the Jobcentre Plus website or your local authority.
You should never take out a loan at a higher rate of interest to pay your regular mortgage payments; this will only make the problem worse. Don’t ignore letters or telephone calls from your lender; if you are not sure what they mean ask your lender or a debt adviser. Don’t stop paying altogether if you can’t afford the full repayment: talk to your lender and pay what you can each month.
You may be thinking about abandoning your property or sending the keys to your lender. You should not do this without talking to your lender first and understanding the consequences. You should be aware that:
- You will still owe any outstanding debt/mortgage, including the interest building up on the loan, until the property is sold.
- You will have to pay for the costs of selling the property and will still owe any shortfall between the sale price of the property and the outstanding debt.
- Your lender may pursue you, through the courts, to recover the total amount owing.
- You may be recorded on a register of people who have had their properties repossessed and may find it more difficult to obtain loan finance in future.
Sale and rent-back schemes: exercise caution
Some companies offer to help you if you get into financial difficulties with your mortgage payments by buying your home and then renting it back to you for a fixed period of time (six months or more). These are sometimes called ‘mortgage rescue’, ‘rent-back’ or ‘sell-to-let’ schemes.
More information on these schemes can be found on the Money Advice Service Before entering a scheme you should contact the FCA to check if a company is registered to make sure you have access to the complaints procedures if things go wrong.
Selling your home in this way may allow you to clear your mortgage debts and stay in your home. However, if you opt for such a scheme you will no longer own your home and could still be evicted if you fall behind with your new rental payments. So think carefully before entering into such a scheme and make sure you understand the consequences. You should consider getting an independent valuation and impartial advice before making a decision.
Specialist advice may be needed which cannot be obtained from your lender or you might want to seek independent advice about the best course of action for you.
Organisations that can help you with your money problems
Citizens' Advice Bureau
Can help with money and housing problems. Further contact details can be found on the website.
Provides the UK with a huge support network, enabling those in distress to find a counsellor close to them and appropriate for their needs.
- National Debtline
Charity offering free, confidential advice including a comprehensive website section on mortgage arrears.
Housing charity offering a comprehensive source of advice and information in housing, including avoiding repossession.
Free confidential advice on debt problems.
StepChange Debt Charity
Provides free advice on debt management. It has a free national helpline and eight advice centres around the UK.
The National Homelessness Advice Service
offers advice agencies the specialist support and professional resources to enable advisers to give the most appropriate, accurate and timely housing advice to people. The National Homelessness Advice Service also has a leaflet 'Are you worried about your mortgage?'
Organisations that can help with legal advice
Civil Legal Advice
The helpline (0845 345 4 345) can provide callers with general housing advice as well as specialist advice for those who are eligible for legal aid
Law Centres are independent, and employ lawyers and specialist advisers to assist and represent clients in court.
Organisations that can help you with alternative housing
Many local authorities have comprehensive housing advice centres which give necessary information about what housing may be available. Shelter can also offer advice and assistance on housing.