If you have mortgage arrears, it means that you are behind on your mortgage payments. If you do not keep up with your monthly mortgage payments, your lender may apply charges for your being behind – this is also called being “in arrears”. These charges are made to cover the lender’s costs of managing the account while it is in arrears. As a homeowner, it’s unfortunately not just bricks and mortar but a mortgage that keeps a roof over your head. If you want to protect your home and prevent it from being repossessed, it is important that you understand the weight of meeting your monthly repayments, and the consequences if you do not.
What Are the Risks of Mortgage Arrears?
Mortgage arrears should be avoided due to the risks they can bring regarding your banking history. Your financial footprint may be damaged if you miss your mortgage payments as this is recorded on your credit file and, if you do not pay what you owe, not only may your credit score be damaged, but you are at risk of your house being repossessed.
Mortgage arrears may also cause you to have issues in attempting to withdraw a new mortgage. If you have mortgage arrears due to failure to meet payments, you should also not apply for a mortgage until you have checked your credit score. You will likely struggle when applying for a new mortgage if lenders can see that you have missed payments on your credit file. Not only this but if you already have built up debt from previous mortgage arrears, applying for a new mortgage will only sink you deeper and deeper into debt. Having mortgage arrears will indicate that you have financial problems, and may not be the most reliable person to lend to, so you must avoid them to prevent any future difficulties.
Can My House Be Repossessed?
You house can be repossessed as a result of mortgage arrears. This will be done through court action, called possession action, by your mortgage lenders if you refuse to may your arrears. You may be able to stop the case if you negotiate with your lender and come to some agreement regarding the payment of your debt. If this is the case, the court may agree to grant a suspended possession order – this will allow you to stay in your home for a period until you have managed to amass the necessary money to settle your mortgage arrears.
A lender will always have to follow the Mortgage Conduct of Business (MCOB) rules laid down by the Financial Conduct Authority (FCA). The rules state that your mortgage lender must treat you fairly and give you a reasonable chance to make arrangements to pay off the arrears, if you are able to. They must consider any reasonable request from you to change when or how you pay. Your mortgage lender should only start court action as a last resort, if all other attempts to collect the arrears have got nowhere.
If pre-action protocol has been followed, and you have still not been able to settle your payments with your lender, court action may proceed and this may end in the repossession of your house if you remain unable to make the payments. It would be best to try and arrange something before court action is appealed, so here is a run down of some of the things you can do to amend the issue of mortgage arrears with your lender and potentially avoid repossession.
What Can You Do About Mortgage Arrears?
If you fear that you will not be able to make your mortgage repayments, the most important thing you can do is speak to your lender right away. You must alert your lender as soon as possible to the fact that you may not be able to make your mortgage payment on time.
If you’re overdue on your mortgage repayments and have already claimed your mortgage payment protection insurance (MPPI), make sure to use it. An MPPI is a form of income protection that provides cover for your mortgage payments in case you, for example, have been made involuntarily redundant or are unable to work due to an accident or an illness. Although getting an MPPI is not compulsory, an estimated one in five homeowners has this type of cover as it is useful if you find yourself unable to make your mortgage payments due to an unforeseen circumstance.
You should do this before you seek any support from the Government, but if you do feel the need to contact the Government, know that they will not be able to pay your mortgage for you. However, Support for Mortgage Interest (SMI) will pay the mortgage interest for you. This is paid in the form of a loan, which you will need to eventually pay back.
For the money that SMI won’t cover, you’ll need to find this yourself or alternatively ask your lender and see if something can be arranged. If you speak to your lender and inform them that you will not be able to make the repayment date, there may be some things they can do it prevent you from gaining mortgage arrears.
What Could Your Lender Do to Help?
A lender should treat you fairly if you inform them that you will not be able to make your next payment, and there may be some things that they can offer to do.
- Repay what you owe at a later date – you could arrange to have what you owe added to the outstanding amount on the mortgage, or ‘capitalising the arrears
- Change when you pay – you may be able to change your repayment date to when you can afford it
- Repay your mortgage over a longer period – extending the mortgage term may aid in your ability to repay
- Reduce your monthly interest payments – you may be able to negotiate a lower interest rate if you have equity in your property
Of course, although a lender can act to help you when necessary, there is a limit to the reach of their actions. What is listed above are temporary actions, but permanent solutions. If your mortgage is simply too expensive, you may want to consider changing to a cheaper mortgage.
Continuous failure to make repayment dates will lead to mortgage arrears. This will in turn result in a hit to your credit score and difficulty in getting out any future mortgage loans and the possibility of the repossession of your house.
