It’s essential to talk
If you are having difficulty meeting your mortgage repayments or are worried it may become a problem in the future, you may wish to consider the following information.
What you should do if you are having trouble paying your mortgage
If you are in this situation there are two steps you should follow:
Tell your lender as soon as possible: your lender will be sympathetic and will provide as much assistance as possible.
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.
Inform your lender
If you are having trouble paying your mortgage, or you think it will be a problem in the near future, you should inform 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.
There are a number of organisations and counsellors that can help you assess your financial problems and advise the best course of action to solve them.
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.
Government schemes to help with mortgage arrears
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.
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.
The upper limit on the rate of interest paid is 6.08 per cent and there is a two year time limit in which you can claim IS for mortgage interest.
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, however the scheme is only offered through some lenders.
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 become a tenant of the housing association, paying a rent you can afford.
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 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.
The Scottish Government announced an expansion of the Mortgage to Rent Scheme and a new Shared Equity Scheme.
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 become 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.
Sale and rent-back schemes
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.
The Financial Services Authority’s (FSA) announced recently that they are introducing an interim regime for the regulation of sale-and-leaseback firms. 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 their entire home for cash and retain the right to live in it for a nominal rent.
They should also not be confused with the government mortgage rescue schemes.
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.