When dealing with your mortgage and mortgage arrears the first thing you need to understand is that these are secured debts. This means that ultimately if you fall too far behind with your payments the mortgage company has the right to repossess your home and sell it to recover the debt you owe.

If you want to stay in your property and avoid repossession you will need to start paying your mortgage on time and repay any arrears you have.

As such you cannot use a Debt Management Plan (DMP) to help manage your mortgage arrears directly. However you can still use this type of solution to free up cash from your other debt repayments to help repay your mortgage arrears and protect your home. We explain how this works.

How you can use a DMP to control mortgage arrears

A DMP can be successfully used to protect your property and reduce outstanding arrears. The way this works is that once you are in the Plan your mortgage and mortgage arrears payments are prioritised over other unsecured debt payments.

You include sufficient cash your living expenditure budget to cover both your ongoing mortgage payments and an amount towards your arrears.

BMD Tip: Your budget for repaying arrears should be based on a sensible amount which allows the debt to be paid in a reasonable time (perhaps over 6 – 12 months). However you should also be sure to leave yourself enough disposable income to make sensible DMP payments towards your other unsecured debts

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Negotiating with your mortgage lender

Once you have reviewed your income and expenditure budget and established a sensible amount that you can afford to pay towards your mortgage arrears each month, you need to speak to your mortgage lender.

You should explain that you have made a sensible review of your finances and are going to use a DMP to reduce payments to your unsecured debt. Make clear that this will then allow you to start paying your ongoing mortgage payments as normal and allow a budget for repaying the outstanding arrears as well.

If you can present a sensible plan like this you are far more likely to be able to agree it with your lender thus avoiding them taking any further action in terms of repossessing your home.

What if your home has already been repossessed?

If you are in the unfortunate position that your property has already been repossessed, any outstanding mortgage debt which has not been repaid after the sale of the property then becomes unsecured. This means that from now on this debt can be included in a DMP.

However if the debt is more serious for example £15,000 or above then using this type of solution could  take you a very long time to become debt free. It may therefore be better to consider an alternative debt management solution such as an IVA (Individual Voluntary Arrangement) or Bankruptcy.

Both of these solutions allow debt to be written off and so will normally last for far less time than a DMP.