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Written by Ruban Selvanayagam
Ruban Selvanayagam
Ruban Selvanayagam is a professional cash homebuyer, private rented sector landlord, auction specialist, blogger and media commentator.
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Edited by James Durr
James Durr
James Durr is a passionate property entrepreneur with a strong foundation and background in business.
What Are Mortgage Arrears?
Mortgage arrears occur when payments owed to a lender are continually missed.
You’re not necessarily in mortgage arrears as soon as you miss a mortgage payment. However, if you continue to go without paying and develop a build-up of these missed payments, you will end up in arrears.
Your credit report shows this information for at least six years, so being in mortgage arrears can destroy your credit score and make it harder to borrow in the future. In some situations, it can even lead to your house being repossessed (aka, losing your home).
However, you can avoid this outcome by taking control of the situation earlier.
What Happens When You Go Into Mortgage Arrears?
You can expect to hear from your mortgage lender within 15 days of your first missed mortgage payment, but don’t wait until this happens to take action.
If you want to know how to tackle the situation, skip to our step-by-step guide about dealing with mortgage arrears.
It’s important to note that your lender isn’t lurking in the shadows, waiting to jump out and demand money from you the second there’s a missed payment.
In fact, lenders have legal obligations to treat you fairly and take all possible steps to find a solution. The Financial Conduct Authority (FCA) regulates mortgages, and it requires lenders to communicate with borrowers and be fair – including when they’re in arrears.
Besides, it’s in the lender’s best interests to reach an agreement with you instead of taking you to a court hearing for possession proceedings. This is a far more complex option and involves high court costs, so it’s usually only used as a last resort.
Remember however that mortgage arrears are priority debts, which means you need to pay them before other types of debt – such as credit cards or car loans.
How Many Months Mortgage Arrears Before Repossession?
You won’t face any immediate repercussions if you miss your mortgage payments. Typically, if you go into mortgage arrears and fail to communicate with your lender, it will take around three months for them to take action.
But on 26 June 2023, the government passed a new Mortgage Charter.
The measure was introduced to offer financial help due to high inflation and interest rate rises alongside the cost of living crisis.
It also offers the following key provisions:
- A one-year grace period after missing a mortgage payment. During this time, you cannot be made to leave your home (unless there are exceptional circumstances);
- Lenders should let you adopt interest-only payments for six months or extend your mortgage to keep monthly payments low;
- Lenders should let you secure a new mortgage rate for up to six months before your existing fixed rate deal comes to an end. They must also let you request a better deal up to two weeks before it starts.
Most banks and building societies have signed the charter, so you will be covered as long as your lender is on the list.
If you’re unsure, you can check if they’ve signed it on the government website. Note that the Charter may not apply to second mortgages such as buy-to-let loans.
Can a Mortgage Company Demand Full Payment?
Much will depend on how much mortgage arrears have accumulated.
In theory, the lender can only demand full payment as it pushes forward to repossessing the property. This situation, however, is only likely to occur should the borrower not have done anything to deal with the situation.
Dealing with Mortgage Arrears: What to Do
Being unable to pay your mortgage is a daunting scenario, and it may be tempting to avoid thinking about it.
But remember that there’s plenty of support available alongside ways to get around even the most complicated of situations.
We would recommend taking action by exploring the options listed below…
Check your Mortgage Contract
If you’ve just missed one payment, quickly examine your mortgage contract. It should specify how the lender will deal with the problem, such as charging a one-off penalty.
This is a good first step since it lets you know what to expect, but it won’t help to deal with mortgage arrears.
Contact your Mortgage Lender
After missing a payment, your first step should always be to contact your lender directly – don’t wait for them to contact you. It’s usually easy to find their details via a quick Google search or via your mortgage statements.
The sooner, the better and you can choose whichever medium suits you best. Phone, email or even talking to someone at the mortgage company’s head office.
They should offer various options to help you pay your arrears, such as a mortgage repayment schedule to gradually pay off your debt instead of a lump sum payment.
An alternative is capitalising your arrears by adding the amount to your mortgage. However, this will typically only be an option if your home’s value is greater than the total mortgage debt.
If you’re struggling with your standard mortgage payments, your lender may also:
- Extend your mortgage term;
- Let you take a repayment holiday; or
- Let you only pay mortgage interest temporarily.
None of these options are long-term solutions, but they can reduce the burden on you temporarily while you find your feet again.
Whatever you choose, you should be looking to pay as much as possible (even if it’s not the full arrears or mortgage payments).
That way the lender gets their money quicker, and you get to keep your house whilst clearing the debt to move on with your life.
Swap Endowment to a Repayment Mortgage (Where Possible)
In some cases, you can switch from an endowment mortgage to a repayment mortgage by cashing in the endowment policy.
Remember to plan for the future should you go down this route as there may be unexpected debt obligations later on.
Clear Mortgage Through Your Pension
Another option is to pay through a pension.
However, since these options are relatively complex, it’s best to seek independent financial advice to see if they would lower your monthly payments.
Check for Insurance Cover for Mortgage Arrears
If your insurance policy mentions scenarios like mortgage arrears, it’s well worth checking if you’re covered.
Mortgage protection insurance typically covers you if you accrue arrears due to losing your job, falling ill, or sometimes redundancy.
Income protection insurance or critical illness cover may be relevant if you have become ill or suffered an accident that resulted in your income dropping.
While mortgage payment protection insurance covers mortgage payments directly, income protection and illness insurance policies usually pay out an amount agreed when you took out the policy (based on your earnings).
Start Budgeting
Until you’ve paid off your mortgage arrears and returned to an income level where you can comfortably make your mortgage payments, budgeting and financial management will be crucial.
Various budgeting apps can help with this, or you can make your own using tools like Microsoft Excel or Google Sheets.
Write down how much income you receive each month and what your outgoings are, including debts. Then, you need to work out how to cut down your expenses – as much additional money as possible should go toward your arrears.
Alongside this, it may be worth looking into how you can earn extra income. Seeking out part-time work or taking on a lodger are a couple of examples of what people do.
Once you have an idea of how much you can afford to budget for arrears, you can contact your lender again to arrange a more sustainable payment plan.
If you’re finding it too overwhelming to work this out on your own or you have a lot of debt to manage, you may want to seek further support from a debt advisor.
Assisted Voluntary Sale Scheme
Provided it’s a feasible option, the lender can sometimes agree on giving you extra time to remain in arrears on the basis that you will be selling the property.
Here, you will have to provide proof that you are actively marketing the property. Usually, the estate agent or auctioneer can furnish all that is required.
Help for Mortgage Arrears
As well as your lender, some other organisations and initiatives may be able to help you deal with arrears.
Government Support
If you’re receiving government support, you could be eligible for Support for Mortgage Interest (SMI).
This gives you access to a loan from the Department for Work and Pensions (DWP) that incurs interest, but it can be a way to help you keep your home and has fewer negative repercussions than other types of debts. However, SMI only covers the first £200,000 of a mortgage.
If you claim Pension Credit, Universal Credit or Income Support, you’re likely to be eligible, but it may depend on how long you’ve claimed.
You can also use a benefits checker to determine eligibility for other types of government help. Accessing Universal Credit may not be enough to cover your arrears in full or the normal monthly payment for your mortgage, but being able to pay your lender something is helpful.
If you do end up facing repossession, you can seek free legal advice through charities like The Housing Loss Prevention Advice Service.
Help to Stay Wales
If your property is in Wales, it’s worth less than £300,000, and your household income is £67,000 or below, you could be eligible for the Help to Stay Wales scheme.
This initiative gives you an equity loan that you won’t have to pay back for five years, giving you a chance to remedy your financial difficulties.
Debt Advice
If you’re stressed about debt, various charities can help you get back on track. This can help you to create a budget, prioritise different loans and even negotiate your debt terms with lenders.
One is StepChange, which can assign you a debt adviser to help. It also offers a Breathing Space scheme, which gives you a break of 60 days from debt.
Other options include Citizens Advice, National Debtline and The Money Charity. These can help with negotiations and other aspects of dealing with mortgage arrears.
Is My Mortgage Paid in Arrears?
Mortgage interest is technically paid in arrears rather than in advance. In other words, you pay for the month that has passed rather than the month in advance.
However, this isn’t what people are referring to when discussing mortgage arrears.
What Happens if You Don’t Pay Arrears
If none of the options above have succeeded or your grace period comes to an end, your lender may eventually ask for a possession order from a court. This allows them to recover their investment in your property by selling the home and taking the proceeds. They must let you know two or more weeks before telling the court.
When this happens, it’s essential to attend all court hearings.
However, you’re likely to be able to stop repossession as long as you follow the advice outlined above.
It’s complex and potentially costly for lenders to go down this route, and as mentioned, they’re legally obliged to make alternative arrangements with you where possible instead of taking you straight to court.
Can I Sell My House with Mortgage Arrears?
If you don’t foresee being able to pay off your mortgage soon, you may want to consider selling your home.
It’s best not to hand your keys to the lender, which means you will give the lender control of the sale. In this case, you’ll have to keep covering the monthly payments until the house sells, and the lender is likely to get a lower price than the property’s true value.
You’ll also want to avoid sell and rent back schemes most of the time, as they can put you at risk in the long run and result in you losing out financially. Indeed, there are only a couple of firms that can genuinely offer this.
However, selling up your property and then seeking another house to rent could be a possibility worth considering.
In some cases, when you contact your mortgage lender to explore solutions to deal with arrears, they could offer an assisted voluntary sale scheme. This allows you to stay in your house until you sell it.
Alternatively, you can sell it yourself. This isn’t always a practical option since it takes a while to go through the process and find the right buyer, and it won’t be an option if you have such substantial mortgage arrears that you’re in negative equity.
One way to speed up the process is working with a home-buying company that will purchase the property in cash for a quick sale. We can guide you through this process at Property Solvers.
Dealing with Mortgage Arrears Checklist
Let’s finish things off with a checklist on dealing with your mortgage arrears:
- Contact your lender to make alternative payment arrangements
- Pay as much as you can even if you can’t meet your monthly payments
- See if you have insurance coverage
- Take advantage of any government initiatives such as the Mortgage Charter
- See if you’re eligible for support for mortgage interest payments or other benefits
- Seek advice from charities, debt advisors
- Consider selling your house to cover the debt
