Dealing with a mortgage in arrears

How to manage Mortgage ArrearsIf your mortgage is in arrears it is important to act quickly. If you allow the problem to go on unchecked your mortgage lender may consider making an application to the Court to repossess your home.

Before you can make a decision about how to try and deal with your mortgage arrears you will first need to understand why you have missed your mortgage payments. If it was because of a temporary financial problem which is now fixed the way that the arrears can be resolved is likely to be different than if your financial problems are more permanent.

Once you have understood the reason for the problem then of course you will need to speak to your mortgage lender as soon as possible and explain the situation. Depending on your position there may be different help that your lender can provide.

However you will not be able to simply rely on your mortgage lender. There are also a number of things that you must also do yourself to get yourself back in a position where you are able to afford your mortgage payments. These include reviewing your other living expenditures and if necessary re-prioritising any unsecured debt repayments.

Why is your mortgage in arrears?

There may be a number of reasons why your mortgage has got into arrears and these could be either temporary or more permanent. It is important to understand why your mortgage is in arrears as the solution that you require to resolve the problem will be different depending on this reason.

You may have recently had a temporary financial problem such as a period of unusually high living expenditure or reduced income perhaps due to illness and this has lead to you having to miss some of your mortgage payments.

Alternatively you may have started to miss your mortgage payments due a longer term financial problem. Perhaps you have had a permanent loss of income because of a job change or an increase in your other living expenses.

Another reason for your mortgage to have become unaffordable might be because your mortgage payments themselves have recently increased. The most common reason for this is that you have come to the end of your fixed rate mortgage deal and have now had to move onto your lenders SVR (Standard Variable Rate) which might be a higher rate of interest.

An issue that many experts anticipate will be a problem for lots of people with mortgages over the next few years is a rise in the Bank of England interest rate which will in turn increase the monthly mortgage payments of anyone with tracker type mortgages or SVR mortgages.

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How can your mortgage lender help with your mortgage arrears?

There may be a number of ways that your mortgage lender can help you resolve a mortgage arrears problem depending on whether the reason for them was temporary or is ongoing.

Arrears as a result of a temporary problem

If the reason for your arrears was a temporary financial problem which has now been resolved you should be able to start paying your normal mortgage payments once again so the arrears are not getting any worse. However there is still the issue of resolving the missed payments.

Of course if you can afford to do so then agreeing to make overpayments for a few months until your arrears are paid is a sensible solution. However you may simply not be able to afford to do this.

In this situation an alternative option open to your mortgage lender is to agree to capitalise your arrears meaning that they are added to your mortgage. Your monthly mortgage will then just increase very slightly to cover the extra debt.

Arrears as a result of an ongoing problem

If you have an ongoing financial problem which is preventing from paying your mortgage then under the mortgage Pre Action Protocol your mortgage lender has a duty to try and help you and cannot simply apply to repossess your home. The type of help they can consider offering you are things like:

– Increasing the period over which your mortgage is paid to reduce the monthly payments.
– Capitalise any arrears (add them to the overall mortgage).
– Allowing you to change to an interest only mortgage if you are currently have a repayment product.
– Ultimately reducing the rate of interest they charge you on your mortgage.

Having said that your mortgage lender cannot be expected to do all of the work. You also have a responsibility to review your personal financial situation to see if you can reduce your expenditures in other areas to make sure you keep up with your ongoing mortgage payments.

What can you do to make sure you pay your mortgage payments on time?

The first thing you will need to do is carry out a review of your overall living expenditure budget. You need to look to find any areas where you can make savings and so free up more cash to maintain your mortgage payments.

It is likely that your mortgage lender will want to see evidence that you have done this before they are prepared to offer you help to reduce the cost of your mortgage payments.

If you have not already got a comprehensive living expenses budget you should use our living expenses guide to help you put one together.

If you believe that you simply cannot reduce your living expenses any further then the next thing you need to do is consider the priority you are giving to any other debt that you owe.

A common reason to fall behind with your mortgage payments is that you are prioritising money to make the monthly payments towards unsecured debts. In fact this is the wrong thing to so as however loudly these creditors shout they are not in a position to apply to the Court to repossess your home where as your mortgage lender is.

You must therefore change the way you prioritise your payments and make sure your mortgage is paid first. If this means that you are not left with enough money to pay your unsecured debts you must then consider a debt management solution such as a DMP or IVA to help you reduce these payments to a more manageable amount.

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