A mortgage is a massive financial undertaking and many people will find there are times when they struggle to meet repayments for instance if they lose their job or when family costs hit hard.
More than 125,000 mortgages were in arrears at the end of June this year, according to Council of Mortgage Lenders (CML) figures, up 4 per cent when compared with the six previous months. Meanwhile, at 14,000, the number repossessions in the first six months of this year rose by nearly 18 per cent, compared with the previous half-year.
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State help for people who fall into mortgage arrears is wanting, with benefits only kicking in after nine months and then only covering the interest element of repayments on just £100,000 of a claimants mortgage borrowing.The good news is that most reputable lenders view repossession as the last resort and are surprisingly sympathetic towards defaulting borrowers.
There are a wide range of options available to those looking put right their arrears and avoid the nightmare of repossession.
Dont panic
The first thing we do when someone misses a mortgage payment is send the customer the Financial Services Authoritys guide to dealing with arrears and a note asking them not to panic, but not to ignore the problem either and get in contact with us to discuss their problem, says Zoe Stevens of Nationwide.
Matthew Grayson, of Birmingham Midshires, says the lender takes a similar attitude to arrears: We expect customers to have bumps and scrapes in their finances from time to time, but we ask borrowers to get in touch as soon as they can. This allows us to help them and also demonstrates their willingness to put things right.
In fact, lenders are much more sympathetic and willing to find a positive solution than many worried borrowers allow themselves to imagine, particularly when they speak to their lender sooner rather than later. For example, if a Nationwide borrower contacts their lender just ahead of missing a payment which will see them being hit with a £20 a month fine explaining why they are defaulting that month, they are likely to avoid the fine as well as opening up a positive dialogue about tackling their repayment problems.
Many lenders will expect borrowers to suggest their own plan for paying off their arrears and continuing to keep up the mortgage into the future. Housing charity Shelter suggests borrowers take time to produce a detailed statement of their income, spending and debts and look to see where they might either reduce their spending or increase income.
This shows they are serious, committed to and likely to achieve paying off their arrears and keeping up with their mortgage from there on in.
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Repayment options
The best way for you to tackle problems meeting your mortgage repayments will depend on your individual circumstances and what caused you to default in the first place.
Broadly speaking, borrowers need to look at cutting back on non-essential spending and/or increasing their income by, for example, looking at any benefits they might be eligible for or considering renting out a room in their home.
There are several ways that struggling borrowers can make their monthly payments more affordable. These include, where the terms of their flexible mortgage allows them, taking a payment holiday of a few months, or switching from a repayment arrangement to cheaper interest-only set-up. Alternatively, borrowers can ask their lender if they might add their arrears to their outstanding mortgage, or extend the number of years on their mortgage.
Shelter advises that the best solution for individuals depends on the type of mortgage they have, their age, how much they owe and how much they can afford to pay.
Get some advice
Its a good idea to look at your finances in the round when you fall behind, parï¸ticularly if you continue to struggle for some time, says Grayson.
You may want to get independent advice before you decide how to tackle your arrears. Try approaching free services such as the Consumer Credit Counselling Service, National Debtline, or Citizens Advice (see contacts box below).
Dont be tempted to go for debt consolidation plans or a remortgage before you have looked at all the other options. Borrowing more is highly likely to exacerbate the problem and to increase your chances of ultimately losing your home.
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Insurance
Homeowners can also look into insurance that might help them when times are hard, with the caveat that they choose any policy carefully and shop around for the best deal. Insurance must be in place before disaster strikes, so it makes sense to take it out at the same time as you take out your mortgage.
Generally speaking, mortgage payment protection insurance (MPPI) is designed to pay out should you be unable to meet mortgage repayments if you cannot work because of an accident, sickness or unemployment.
Cover can cost less than £5 a month and the maximum monthly benefit to cover your mortgage if you make a successful claim is typically between £1,500 or £2,000.
Shelter advises consumers to check MPPI policies carefully as many will not pay out until a few months after you are unable to work, and then the monthly benefits might only last a year or two, meaning you may feel you need additional protection.
Also, consumers should check they are getting the cover they need as policies will typically feature conditions where claims will be not be approved, for example if you claim too soon after taking out cover, if you are unable to work because of a pre-existing condition or if you are self-employed.
If you would like the cover provided by MPPI it is a good idea to look at a range of policy options and read the fine print carefully before signing up.
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