Missing mortgage payments

In times of recession, a great number of homeowners fall into arrears with their mortgage. If you are in this situation, you are best to seek help as fast as possible.

If you can’t pay off your mortgage arrears, your mortgage lender will take action through the courts to evict you and recover the property, which they will then sell to pay off the debt.

If the seller knows you are doing your best, they may give you more time to sort out the problem. On the other hand, with property prices falling, lenders may think it is in their interests to auction off the property as quickly as possible.

While this is likely to be an alarming and stressful time, it is important not to simply bury your head in your hand or give up and accept the worst. You can take action, and there are also some ‘solutions’ you should be wary about.

What you can do

You should contact your mortgage lender to discuss the problem.

As soon as possible, think how you are going to clear the debt, make this plan realistic and detailed, and carefully set it out in writing for the mortgage lender. If you are waiting to hear back about a mortgage protection policy payment, or a job, or help with benefits, then the lender may give you more time.

When you put your offer to the mortgage lender, setting out how you intend to repay the debt, include anything that you think will strengthen your case. This may include evidence of a good record in making payments, a job offer, or financial statements. The more equity you have in the property, the better your chances. You are trying to convince them that it is in both your interests for you to continue owning your home.

You may want to ask for help with this from an experienced adviser such as your local Citizens Advice office. They will also be able to advise you on how best to deal with your debt.

If you are unable to pay off the debt and your home is going to have to be sold, it will usually be better for you to sell it yourself than let the lender take charge. 

What your mortgage lender can do

Mortgage lenders have to follow certain procedures when taking you, the homeowner, to court. These procedures are set out in what’s known as a Pre-action Protocol.

Under the Protocol, your lender must give you legal information about your rights if you miss any payments.

They must keep you informed about how much you owe, and what interest and charges apply. They must talk to you, or someone acting on your behalf, about why the arrears have built up and how you propose to repay the difference. They must consider any reasonable request from you to change when and how you pay, and respond promptly to any offer of payment you make. If they do not accept your offer, they must explain why within ten working days. They must write to you to give you at least 15 days’ notice that they will start court action.

Under the Protocol, the lender may postpone any possession action if you make a claim under a mortgage payment protection policy that is likely to be successful, or you can show you are taking reasonable steps to sell your home.

You can make a formal complaint to the Financial Ombudsman Service if you feel your mortgage lender has not played fair in handling your arrears.

Mortgage Rescue

From 16 March 2009, a mortgage rescue scheme will exist in the UK.

In England and Wales, homeowners will be able to sell a share of their home, or their entire home, to a housing association. This means they can continue to live in their home. This option is available to households on less than £60,000 a year.

In Scotland, homeowners will be able to sell up to 75 per cent of their home to the Scottish Government. To be eligible, you must have at least 25 per cent equity in your home and owe at least three months of mortgage arrears.

Caution

It may be tempting to go to a private sell-and-rent-back company. These companies buy your home from you and rent it back to you.

You should be very careful with these offers, and pay particular attention in the agreement to the details on eviction. The company could offer you less than the market value and a rental term of six months or a year. At the end of this period, they could evict you.

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