If you are a homeowner and responsible for paying part, or all, of the mortgage, the prospect of being out of work brings with it a huge burden.
As such the fear of being made redundant or losing your job can create a great deal of anxiety – particularly in the current times when the economy is so volatile.
For this reason, it’s a really good idea to put in place a well-thought-out plan which you can implement should the worst happen and you need to navigate through difficult times.
But how, exactly, can you manage mortgage repayments when faced with a loss of steady income?
We spoke to Pete Mugleston, MD and money expert at www.onlinemoneyadvisor.co.uk about the importance of open communication with lenders, exploring options like mortgage holidays and considering interest-only agreements to alleviate financial stress.
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Open communication with lenders
When faced with job loss and the inability to meet mortgage repayments, the first and most crucial step is to communicate openly with your lender, Mugleston said.
“Ignoring the situation will only exacerbate financial stress. Lenders are often understanding of difficult circumstances and may be willing to work with borrowers who approach them early on.”
He advises explaining your situation honestly and give details of the job loss and any other financial challenges which are relevant.
Whilst some lenders offer forbearance programs or hardship plans that can temporarily reduce or suspend mortgage payments until the borrower’s financial situation improves, open communication is the first step to accessing this.
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Consider a mortgage holiday
You may remember hearing about mortgage holidays during the pandemic, you may even have taken one. These are a temporary break from repayments and can be an option for homeowners who experience a sudden loss of income.
Mugleston said: “During the holiday period, borrowers are not required to make regular mortgage payments, providing much-needed relief during times of financial uncertainty.”
Whilst it can be an invaluable short-term lifeline during unemployment there’s one vital factor of which to be aware.
“It’s important to note that a mortgage holiday is not a forgiveness of the debt,” said Mugleston, “rather, the deferred payments are usually added to the overall mortgage balance – extending the loan term.
“Homeowners should carefully consider the implications of a mortgage holiday, as it may result in slightly higher monthly payments once repayments resume.”
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Exploring an interest-only mortgage
Switching to an interest-only mortgage is another option to consider when facing financial hardship, Mugleston said.
An interest-only mortgage requires borrowers to pay only the interest on their loan each month – not the repayment. It reduces the monthly payments and therefore provides immediate relief to those with limited or no income.
As with payment holidays, there are some things to consider. Mugleston said: “While an interest-only mortgage may offer temporary financial respite, it is crucial to recognise that the loan balance remains unchanged.
“Consequently, the total amount owed on the mortgage does not decrease over time, and the borrower will eventually need to repay the loan either over a longer period of time or with higher monthly repayments down the line.”
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Review other expenses and create a budget
If you are facing unemployment, Mugleston said it is essential to review your overall financial situation and identify areas where expenses can be reduced.
This involves making a budget in you which you prioritise essential expenses such as housing, utilities and food.
“By cutting back on discretionary spending and non-essential items, you can stretch your savings and make ends meet until a new job opportunity arises,” Mugleston said.
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Explore government support and insurance
For anyone struggling with loss of income, there are various government support schemes for individuals.
These may include unemployment benefits, Universal Credit or other assistance programs such as the Support for Mortgage Interest (SMI) scheme. “Investigate the available options and apply for any support that you may be eligible for,” said Mugleston.
He also advises homeowners to review their insurance policies, such as mortgage protection insurance or income protection insurance. “Depending on the policy’s terms, it may provide financial support during periods of job loss or illness – helping to cover mortgage repayments temporarily.”
He added: “Losing a job as a homeowner during a cost-of-living crisis is an incredibly challenging and stressful experience. However, with the right approach and expert financial advice, it is possible to navigate through these tough times and find solutions to manage mortgage repayments effectively.
“Open communication with lenders, considering options like mortgage holidays or interest-only deals, reviewing expenses and exploring government support and insurance can provide much-needed peace of mind and financial stability during unemployment.
“Remember, seeking advice from financial experts can be invaluable in making informed decisions tailored to your specific circumstances.”
