What To Do If You Can’t Pay Your Mortgage
If you are among those fretting about how you’ll pay your mortgage or are already missing payments, don’t descend into the spiral of panic just yet. There are avenues of support available and checking in with a specialist broker will give you a clearer idea of which ones are open to you.
Your broker will first talk you through:
Reaching out to your lender
Lenders know this is a difficult time for many and while their priority is to have their loans repaid, many are happy to offer some flexibility in terms of moving the date you make your repayments each month or reducing the amount you pay. Before defaulting on a payment, make sure you talk to your lender as this will make a difference.
New support announced in June 2023
On 23rd June 2023, Chancellor Jeremy Hunt met with representatives from the UK’s leading mortgage lenders to discuss a package of support for mortgage holders who might struggle with their finances following the Bank of England’s decision to up its base rate to 5%, a 15-year high.
Below is a summary of the measures that were agreed upon:
- A 12-month grace period for homeowners who have missed mortgage payments before repossession action can be taken
- Borrowers who switch to interest-only or extend their term can revert back to their original deals within six months without impacting their credit reports
A mortgage broker can advise you whether changing your mortgage term or product type is in your best interest and your lender can inform you whether these options are available to you.
The copy below was originally written before the mortgage summit in June 2023 and has not been updated
Other options you could explore with your mortgage broker include:
Taking a payment holiday
This is where you temporarily lower your repayments or stop them altogether for a specific period. While the maximum amount of time is usually 6 months, different lenders will have different time limits and judge this based on your current financial outlook and the likelihood of that changing in the coming months. It’s important to note that the monthly repayments would, however, be higher once you resume payments and that taking such a break could affect your credit history.
Using your mortgage payment protection insurance (MPPI)
If you’re unable to work at the moment, you could utilise your MPPI if this is something you took out. Designed to cover your mortgage repayments in the event you’re unable to work due to illness, accident or redundancy, this insurance policy would give you a reprieve until you’re able to resume work.
If the monthly repayments look like they’ll be too much in the long-term, you could look at finding a different deal that’s going to be more sustainable as the world weathers this cost of living crisis. This could be done with your current lender or a new one, depending on the most competitive rates your broker can find. It would require going through the mortgage application process again but it could be worth it if you’re going to be able to meet your repayments more comfortably.
Extending your mortgage term
The average mortgage term is 25 years but a lot of lenders are open to 30 year terms with some even going as high as 40 years. Stretching your repayments out over a longer period of time will reduce the monthly amount. The downside of this, however, is that it’d be a lot longer before you’d own your home outright and you’d pay more interest overall.
Switching to an interest-only mortgage
If you’re currently paying your mortgage back via capital repayment – paying a portion of the loan off each month as well as some of the interest – you could switch to an interest-only mortgage. This would significantly lower your repayments but it would mean that you’ll likely be paying a higher amount of interest over time and that you’d need a way of paying the loan back in full at the end of the term.
Applying for Support for Mortgage Interest (SMI)
Known as SMI, this is a government loan you can apply for if you’re receiving benefits and not earning an income. The loan will cover the interest on your repayments at a rate set by the government but to qualify, you’d have to have been receiving either income support, jobseeker’s allowance, employment and support allowance, universal credit or pension credit for a set period of time, which differs depending on the type of support you receive. You’ll then resume repayments once when your benefits stop.
In short, struggling to meet your mortgage repayments isn’t something you have to battle alone. Brokers have a whole host of tools they can recommend that might prevent you from defaulting or having to sell your home.
For more advice on how to make your mortgage repayments more manageable, call 0808 189 2301 or fill out an enquiry form to be matched with an expert broker for a free consultation.