Worried about your mortgage

If you are having difficulty meeting your mortgage repayments or are worried it may become a problem in the future, here is some information which may help you.

What you should do if you are having trouble paying your mortgage

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 options available to you: your repayments may be covered by an insurance policy or you may be eligible for state benefits which could increase your income and/or help with your mortgage repayments.

The Financial Services Authority has also published some helpful guidance for borrowers in difficulty: ‘what to do if you can’t pay your mortgage’.

Back to top

Your first step: tell your lender

If you are unable to make your full mortgage repayments, or you anticipate that this may be the case in the near future, you should tell your lender immediately. You should not worry that your lender will be unhelpful; lenders try to deal with all cases of arrears sympathetically and positively.

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.

Back to top

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.

Your third step: check the options 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. There are also state benefits available which could assist you. It is worth seeking advice on whether you are eligible for any of the benefits listed below:

Back to top

Income Support

Income Support (IS) is a benefit to help people on low incomes, although eligibility for help with housing costs is very restrictive. Categories of people who might be able to claim include people bringing up children on their own, those who are too ill or disabled to work, or people who give up work to become carers. 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.

If you qualify, then there are limited arrangements in place to help meet your mortgage interest, provided that the purpose of the mortgage was for the purchase of your home or for work carried out to maintain the property's fitness for occupation. There is an upper limit of £100,000 on the size of mortgage which IS will cover - although if your mortgage is larger than this, you may still be able to receive assistance on the first £100,000. Restrictions can be imposed if your housing costs are considered to be excessive.

In addition to mortgage interest, IS 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. IS for mortgage interest is normally paid direct to your mortgage lender and credited to your mortgage account every four weeks in arrears.

The timing of the assistance will depend on when you took out your mortgage, but usually you cannot start receiving assistance until 9 months after the start of a claim: check with your local Jobcentre Plus office.

The government has announced changes to Income Support for Mortgage Interest which will be introduced in April 2009. Until then, the information above is correct.

For information and advice on Income Support, or to make a claim, visit the Jobcentre Plus website or phone 0800 055 6688.

Back to top

Jobseeker’s Allowance

Jobseeker’s Allowance (JSA) is an unemployment benefit for people who are actively seeking work. Assistance with housing costs is available if you are receiving income-based JSA. The rules concerning housing costs are virtually the same as for those claiming IS (see above). You can obtain JSA information leaflets and claim forms by telephone, by letter or in person at your local Jobcentre Plus office, or phone 0800 055 6688.

Pension Credit

State Pension is a benefit for people who have reached the age of 60, have a relatively low pension income, and have paid or been credited with National Insurance contributions. Help towards housing costs is available from the outset of a claim and is calculated using the standard interest rate and the outstanding mortgage balance. The rules are broadly similar to those for IS/JSA for housing cost payments. You can obtain further information and claim forms from the Pension Service website, your local pension centre, or by phone on 0800 99 1234.

Back to top

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 informatio or call 0845 300 3900.

Council Tax benefit

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 webite or your local authority.

Back to top

What you should NOT do

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.

Back to top

Mortgage rescue' 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.

These schemes are not regulated by the Financial Services Authority so you may not have access to the complaints and compensation procedures if things go wrong. They are not the same as ‘home reversion’ schemes which are for people who have paid off their mortgage and want to sell part or all of their home for cash and retain the right to live in it for a nominal rent.

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. In addition most of these firms will pay you less than the market value of your property, so think carefully before entering into such a scheme and make sure you understand the consequences.

Back to top

Sources of further advice and assistanceSpecialist 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

The Financial Services Authority
The industry regulator has a series of practical guides on managing money and financial products on their website including this guide on: ‘what to do if you can’t pay your mortgage’.

Citizens' Advice Bureau
Can help with money and housing problems. Find the telephone number of your local bureau on the Adviceguide website.

National Debtline
Charity offering free, confidential advice including a comprehensive website section on mortgage arrears.

Shelter
Housing charity offering a comprehensive source of advice and information in housing, including avoiding repossession - see their website for further information.

Consumer Credit Counselling Service (CCCS)
Offers assistance in resolving multiple debts – see their website for further information.

Payplan
Free confidential advice on debt problems - see the Payplan website.

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.