Households are being squeezed from all angles. But if you are struggling to keep up with your mortgage payments, these are the steps you need to take.
The cost-of-living crisis has seen food, energy and petrol prices soar over the last few months, meaning many Brits are re-assessing their expenditure and cutting back where they can.
But when it comes to your mortgage – often the biggest monthly outgoing – many may struggle silently for fear the home will be repossessed.
However, despite the misconception, telling your lender you’re having problems paying your mortgage doesn’t mean they’ll start to repossess your home.
According to the Building Societies Association (BSA) and the Money Advice Trust, “lenders are very sensitive to the rising number of people facing a squeezed household budget, and if they know there is a problem, they will do everything possible to help”. They say repossession is a last resort.
The firms have produced a guide for borrowers on what to do if you can’t pay your mortgage, or think you might struggle to make your payments in the coming months.
It lists six steps to take, what to expect when you contact a lender, the role of debt advisers and where to turn for further help.
1) Contact your lender sooner rather than later
As soon as you think you will have a problem; whether you can’t pay anything, can’t pay all of your monthly payment or can’t pay it on time, get in touch with your lender straight away. The earlier you start talking to each other the more likely it is that a solution can be found.
2) Assess your situation
Work out a household budget including what’s coming in and what’s going out. Prioritise essential bills such as your mortgage, secured loans, council tax and food. You may be able to reschedule unsecured loans, credit cards and other types of credit.
You should also check you’re getting all help available to you such as benefits and tax credits. Use the benefits calculator by charity Turn2Us.
3) Keep in contact
Keep your lender up-to-date about your financial situation. Be honest about what you are doing and let it know if there are further changes to your circumstances.
4) Pay what you can
Your lender could agree to reduced monthly payments so be realistic about what you can afford to pay. Make sure you pay this regularly and on time.
5) Explore your options
If you’re worried about interest rates going up and that you won’t be able to afford the repayments, talk to your lender about whether a switch to a fixed-rate mortgage would be the right option for you. Your lender will advise you.
6) Take advice from trusted sources
Your lender will be able to help, and you can also get free, independent advice from organisations like National Debtline, Citizens Advice and Shelter.
Be especially wary of ‘sale and rent back’ companies that offer to sell your house very quickly for less than the market value. Under these schemes you may only get a five-year tenancy and risk eviction at the end of it even if you are up-to-date with your rent. You may also lose housing and other benefits.
Also be wary of IVA companies that offer to make your debts disappear. An Individual Voluntary Arrangement (IVA) can be the right approach for some people, but for others can prove to be very expensive.
Paul Broadhead, head of mortgage policy at the BSA, said: “Borrowers struggling financially should not bury their head in the sand. If they read this booklet, the guidance contained in it should ease their fears about the process. It should encourage them to contact their lender as soon as possible, with confidence to discuss the options available to them.”
Jane Tully, director of external affairs and partnerships at the Money Advice Trust, the charity that runs National Debtline, said: “As the cost-of-living crisis continues to bite, it has never been more important for households to have access to the right advice and information. Rising interest rates are bringing mortgage worries to the fore for many homeowners, and this guidance is designed to help anyone worried about keeping up with their payments. The key thing to remember is you are not alone – it is always better to contact your mortgage provider to share your concerns, and you can always contact a charity-run service like National Debtline for free, independent advice.”