Soaring living costs have meant that many people’s finances are under strain, with some worried about how they’ll cover their mortgage payments in the months to come.
The Bank of England’s interest rate hikes from last year made plenty of people more anxious about their financial situation. While interest rates have now been at 5.25% for the last five months, variable rate mortgage holders are still feeling the effects of these hikes.
Everyone’s circumstances are different, and it’s important to consider what will truly help you cope financially if you are struggling to pay your mortgage. Whatever you do, don’t panic, as there are a number of options to explore which may help ease your cash flow and avoid putting your home at risk.
Here we explain some of the steps you can take, where to go for help and some tips for staying on top of your payments.
If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
Contact your lender as soon as possible
While it may be tempting to bury your head in the sand when it comes to thinking about your finances, if you think you are going to miss, or have missed, a mortgage payment the first thing you should do is contact your lender.
If you do not contact your lender and you miss a payment, this will trigger the arrears process, which is the first step along the path to repossession – something no one wants to happen.
Your lender has to make all reasonable efforts to help you to manage your debts, and consider requests to change the way you pay. Some alternatives they might explore with you include:
- Pausing payments for a period of time, also known as taking a mortgage payment holiday. During the pandemic, the government supported a scheme that allowed homeowners to pause their mortgage payments for the maximum of six months. This scheme, and all payment holidays under it, ended on 31 July 2021 but some lenders may continue to offer this to their customers
- Reducing your monthly payments temporarily
- Extending the term of your loan, and so effectively reducing repayments – for example, from 20 to 25 years
- Changing your mortgage to an interest-only mortgage, so you only pay the interest on the underlying mortgage amount. However, this means you will need a plan for how you will repay the original sum borrowed at the end of the term. See our article How do I pay off my interest-only mortgage?
Your eligibility for each of these options will depend on a number of factors, including your payment history, whether you have overpaid in the past and your wider financial situation. It’s important to be aware that these are all short term fixes which can buy you more time to get on top of your finances, but are likely to increase the overall cost of your mortgage.
What does being ‘in arrears’ mean?
If you are in mortgage arrears, it means you are behind on your monthly payments. The severity of your arrears depends on how much your debt has built up as a result of failing to make payments. For example, early arrears generally means that you owe between 2.5% and 5% of your mortgage value, and more significant arrears means that you owe 10% or more. Like any unpaid debts, missing mortgage payments will be recorded on your credit history and not addressing the issue could mean you are at risk of not only losing your home but it could also impact on your ability to borrow money in the future.
Get free advice
If you are struggling to pay your mortgage, in addition to speaking to your lender, it can be useful to seek professional advice on your wider financial picture.
It’s vital to tackle mortgage arrears, and there are plenty of free sources of advice and many charities and organisations that can help you negotiate payment plans with your creditors on your behalf. These include:
- Citizens Advice – 0800 144 8848 (England) 0800 702 2020 (Wales)
- StepChange – 0800 138 1111
- National Debtline – 0808 808 4000
- PayPlan – 0800 280 2816
Check for insurance cover
Another place you may receive help is through insurance cover. When you took out your mortgage, you might have been offered mortgage payment protection insurance (MPPI), income protection insurance or critical illness cover. Depending on the reason for your financial struggles, you may find that you have some level of protection that could help you for the short term.
If you find that you do have insurance, it’s best to claim this before taking any other action as it can provide the breathing space you need to get back on top of your finances.
Draw up a budget
If you are looking for ways to access cash to help with your mortgage payments, drawing up a budget can be a simple way to start. This might help you reduce unnecessary spending and stop you from having to borrow money to cover your costs. Our articles Budgeting if your income has reduced and How to save money – 21 money saving tips can help you work out a monthly budget and reduce your outgoings.
Can I get any government support?
There are a number of schemes currently available that might help you if you’re finding it difficult to keep up with your mortgage payments and the Chancellor in December met with major lenders, Martin Lewis of MoneySavingExpert.com, and the Financial Conduct Authority (FCA) to discuss how lenders can support those who may encounter problems paying their mortgage, with the following measures announced.
At the meeting, lenders committed to help all customers by:
- enabling customers who are up to date with payments to switch to a new competitive, mortgage deal without another affordability test
- providing well-timed information to help customers plan ahead should their current rate be due to end
- offering tailored support to those who start to struggle with payments which will vary by lender, but may include extending the term of the mortgage to make monthly payments lower, a short term reduction in monthly payments or accepting interest-only payments for a period where appropriate
- ensuring trained and experienced staff are on hand to help where needed
The government confirmed:
- action to make Support for Mortgage Interest easier to access; if you are on Universal Credit you may be able to receive help with your mortgage interest payments after three months
- record levels of funding for the Money and Pensions Service to provide debt advice in England
The FCA announced:
- a consultation on draft guidance clarifying how lenders can support borrowers impacted by the rising cost of living
- information for borrowers on the options and support available if they are struggling with payments.
Support for Mortgage Interest Scheme
If you are in real difficulties and are at risk of losing your home, the Support for Mortgage Interest (SMI) scheme can help pay the interest on your mortgage if you are on any one of the following benefits:
- Income Support
- Income-based Jobseeker’s Allowance (JSA)
- Income-related Employment and Support Allowance (ESA)
- Universal Credit
- Pension Credit
If you are eligible, SMI offers to pay the interest on the first £200,000 of your property (£100,000 if you receive Pension Credit) at a set interest rate of 2.09%.
Bear in mind that SMI is a loan that you will have to pay back, with interest. The interest rate can fluctuate, but the rate will not change more than twice a year, and currently stands at 0.6%.
You can find out more about SMI here.
Government backed debt ‘Breathing Space’
The UK government offers a scheme called ‘Breathing Space’ to give people struggling with debts (including mortgage arrears) legal protections from their creditors for 60 days, with most interest and penalty charges frozen, and enforcement action halted. In addition, if you are suffering with a mental health crisis that is impacting your ability to pay your outgoings you may be able to access even more protection and assistance.
If you are struggling with your mortgage payments, it could be worthwhile looking into the scheme, which is available through charities such as StepChange, National Debtline and Citizens Advice. Through the scheme you can receive professional debt advice to design a plan aimed at getting your finances back on track.
Mortgage support if you live in Scotland
The help available in Scotland is slightly different, where you may be able to get support through the Home Owners’ Support Fund. This is made up of two schemes: Mortgage to Shared Equity Scheme and Mortgage to Rent Scheme, both of which are designed to help homeowners who are having difficulty paying their mortgage to stay in their homes.
You can find out more about the Home Owners’ Support Fund here.
Is remortgaging an option?
Remortgaging onto a better deal may be a way to save money on the monthly payments you are making. For example, if you move onto a fixed-rate mortgage deal after languishing on your lender’s Standard Variable Rate (SVR) you will most likely reduce your monthly repayments. Your interest rates will usually be fixed for a set period of time, so make a note to look at your options before the end of the deal. If you don’t remortgage at the end of a deal, your repayments may suddenly jump.
It’s important to note that remortgaging during times of financial hardship may mean that your application is not successful, but if you are looking at future payments and thinking that you might not be able to afford them, then remortgaging could be a good option.
If you’re a homeowner who is over 55, it may be worth speaking to a lender about retirement interest-only mortgages. These enable you to only pay the interest on your mortgage amount indefinitely. You don’t have to worry about repaying the capital loan, which is only repaid when you die or move.
If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
What options should you try to avoid?
There may be some options that seem the solution to your financial difficulties. However, it’s really important to ensure you’re making the right decisions for you, particularly if being in debt is causing you stress and it’s hard to think clearly
For example, think carefully about any of the following options, as they may be far from the right solution, depending on your personal situation:
- Taking out any further loans to pay off your debts – Some debt consolidation loans are expensive, and if you are in financial difficulty, they may ask you to secure the loan against your home. This puts you at greater risk of losing your home. Always read the fine print of any product that promises to help you avoid repossession, as it’s highly likely to be an empty promise.
- Selling your home if you have nowhere else to live – If you’ve reached the point where your only available option is to sell your home, it’s really important that you have arranged another place to live. While selling your home yourself rather than waiting for your lender to initiate an auction process can mean you get more money, if you have nowhere else to move into, it’s unlikely that you will be able to get any government help. If you do this, your local council is likely to class you as being intentionally homeless and you will not be a priority for social housing.
- Sale-and-rent-back schemes – These are schemes where you sell your home to a private company and then rent it back from them. There is a risk that the private company offering to buy your home will offer you lower than the market price of your home, so you could be better off selling your home yourself and renting somewhere else. It’s important to know that the Financial Conduct Authority (FCA) has investigated a number of these private companies and has found many serious problems with the scheme, so if you can explore any other alternatives, or seek debt counselling, it could work out better for you.
Whatever happens, don’t suffer in silence, as struggling with your mortgage on your own can take a real toll on your mental health. If you are finding it hard to cope, our article Are money worries affecting your mental health? explains where to go for help if you need someone to talk to.
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