How To Deal With Mortgage Arrears

Mortgage arrears is the term used to describe when you are behind on your mortgage repayments.

Most mortgage lenders consider you to be in arrears if you’ve missed two consecutive payments. However, any missed payments are recorded on your credit report, where they will remain for six years.

It’s important to note that mortgage arrears can be referred to as missed payments and differ from late payments, which typically refer to utility bills, phone bills, etc.

In this article, we’ll look in more detail at mortgage arrears, how they can happen, what you can do if you’re in arrears and the potential repercussions.

Common causes of mortgage arrears

Mortgage arrears can happen to anyone and for a variety of reasons. By understanding how you can end up in arrears, you can help prevent financial difficulties or find solutions if you’re already struggling.

Here are the most common reasons borrowers fall behind on their payments:

• Loss of income: If you’ve been made redundant, lost your job, or have reduced working hours, these are common reasons you might struggle to meet your mortgage payments. Without a steady income, covering monthly mortgage costs can quickly become unmanageable.
• Illness or injury: Suffering unexpected health issues can prevent you from working and may increase medical costs, creating financial pressure that can impact your mortgage payments.
• Rising interest rates: If you have a variable rate or tracker mortgage, an increase in the Bank of England base rate, which typically leads to higher interest rates, can cause a sudden rise in monthly payments. This can lead to financial strain if your budget is already stretched.
• Unexpected expenses: Unplanned costs, such as car repairs, home repairs, or emergencies, can disrupt financial stability and make it more challenging to keep up with mortgage payments.
• Poor budgeting or overcommitment: Taking on too much debt (e.g., loans, credit cards, or other financial commitments) can reduce the available funds for mortgage payments, especially if your income doesn’t increase accordingly.

What happens if you’re in mortgage arrears

If you’re in mortgage arrears, your mortgage lender will usually contact you within 15 days to find a resolution for your missed payment.

If you know you’ll miss a payment or have already missed one, it’s crucial to contact your lender as soon as possible. Being proactive helps reassure the lender that you are willing to resolve the situation.

Lenders may be more willing to offer flexible arrangements if you initiate communication.

Contacting your lender early can also protect your credit score. Although missing a payment will typically result in a negative mark on your credit file, working out an agreement with your lender may prevent further damage.

Reaching out to your lender won’t negatively affect your credit score.

If you fail to communicate and the missed payment remains unresolved, it may be reported to credit agencies. Repeated missed payments can escalate the situation and lead to serious consequences, such as default notices or even repossession proceedings.

A mortgage broker can help you if you’re in arrears. They can review your options and advise you on what course of action might be best given your circumstances.

What options do you have if you’re in arrears?

Mortgage arrears are considered a priority debt due to the potentially serious consequences of failing to pay it. If your debts exceed your income, you should prioritise arrears over other debts.

Your lender has to treat you fairly if you’re in arrears and trying to resolve the situation. Several options are available to you should you find yourself in this situation.

We’ve listed some of the most common below:

• Switch to an interest-only mortgage: By switching to an interest-only mortgage, you’ll only pay the interest on your mortgage, lowering your repayments for a period. However, you’ll still need to repay the entire balance. So, if you can take this option, it’s worth thinking about when you’d switch back to a fixed-rate mortgage.
• Work out a payment plan: Your lender might suggest a repayment plan to spread your arrears over a longer period rather than paying them back as a lump sum. This will depend on your lender and your circumstances. Some lenders might require you to back your arrears as a lump sum rather than on top of your mortgage repayments.
• Take a payment holiday: If you have short-term financial difficulty, you can request a mortgage payment holiday. This pauses your payments for a period, typically a few months, allowing you to get back onto a sound financial footing. It’s important to note you will still accrue interest on your mortgage even if you’re not making repayments.
• Apply for government support: Government help is available to you if you find yourself in arrears. You can apply for the following:
  • Support for Mortgage Interest (SMI): Support for Mortgage Interest is a loan that helps cover the interest on your mortgage. It only covers the interest, not the principal.
  • Universal Credit: Applying for universal credit can help supplement your income, depending on your circumstances
• Extend your mortgage term: Another option is to extend your mortgage term. This will reduce your monthly repayments, which should make it easier to keep up with your payments. However, it will also increase the total amount of interest you’ll have to pay over the lifetime of the mortgage.
• Remortgage: You can also look into remortgaging onto a deal with lower interest rates or more flexible terms. However, this might prove difficult if your arrears have impacted your credit score, and you might have to early repayment charges if you remortgage before the end of your current term.

How mortgage arrears affect you

Failing to make your mortgage payments can lead to several serious immediate and long-term consequences.

We’ve listed some of the most common below:

• Late fees and charges: Lenders may charge late payment fees or other penalties, which can add to your debt and worsen your financial situation. These charges can accumulate quickly if arrears continue.
• Negative impact on your credit score: Mortgage arrears are reported to credit reference agencies. Even a single missed payment can lower your credit score, making it more difficult to obtain loans, credit cards, or even rental housing in the future.
• Difficulty remortgaging or refinancing: If your credit score has been negatively impacted by arrears, you may struggle to qualify for better mortgage deals. This can lock you into higher interest rates or unfavourable terms.
• Risk of repossession: Your lender may initiate repossession proceedings if arrears remain unpaid and no resolution is reached. This is usually a last resort but can result in the loss of your home.

If you want to check your credit score before you decide how to proceed in handling your mortgage arrears, check out the link below.

Early warning signs to watch out for

One of the best ways to prevent yourself from being in mortgage arrears is to be aware of early warning signs that can lead to you being in arrears.

Here’s what to look for and how to avoid trouble:

Warning signs

• Struggling to pay bills or meet other financial obligations
• Consistently spending more than you earn
• Receiving late payment notices for utilities, loans, or credit cards
• Using credit to cover everyday expenses or making only minimum payments on debts

Prevention tips

• Create a budget: Regularly review your income and expenses to ensure you live within your means.
• Build an emergency fund: Aim to save at least 3-6 months’ worth of expenses to cover unexpected costs.
• Track mortgage rate changes: Stay informed about interest rate changes, especially if you have a variable-rate mortgage.
• Consider mortgage protection insurance: This type of insurance can provide payments in case of illness, injury, or job loss.

What legal protection is there for people in mortgage arrears?

If you find yourself in arrears, the good news is that borrowers have rights and protections to ensure lenders treat them fairly.

These protections include:

• Financial Conduct Authority Regulations: The Financial Conduct Authority (FCA) requires lenders to act responsibly and offer support to borrowers facing financial difficulties. Lenders must make reasonable efforts to reach an agreement before initiating repossession proceedings.
• Mortgage Conduct of Business (MCOB) Rules: MCOB rules outline how lenders should handle arrears. For example, lenders must provide clear information on missed payments and offer realistic options to help borrowers get back on track.
• Repossession process: In most cases, lenders cannot repossess a home without following proper legal procedures. This includes sending formal notices, offering repayment options, and applying to the court for permission.
• The Pre-Action Protocol: Before applying for repossession, lenders are required to follow the Pre-Action Protocol, which involves giving borrowers a chance to negotiate a solution, such as a repayment plan.

What is the repossession process if arrears persist?

If, in the worst-case scenario, your house is repossessed because of mortgage arrears, your lender will take certain steps to start the proceedings.

Following the introduction of the Mortgage Charter in 2023, lenders are committed to not initiating repossession proceedings until at least 12 months after you’ve first missed a payment.

This extension was introduced to give borrowers additional time to address their financial challenges and work towards a resolution without the immediate threat of losing their homes.

If you do end up in repossession proceedings following your arrears, here’s what to expect:

• Initial steps: The lender will send notices and may issue a “default notice” if payments are not made. They will also provide details of repayment options and potential consequences.
• Court proceedings: If no agreement is reached, the lender can apply to the court for a repossession order. The court will notify you of the hearing date and give you an opportunity to present your case.
• Court Decision: The court may grant an outright possession order, which sets a date for you to leave the property, or a suspended possession order, allowing you to stay if you adhere to certain repayment conditions.
• Eviction: If you fail to comply with the court’s order, bailiffs may be instructed to evict you from the property. You can still try to negotiate with your lender or seek emergency legal advice at this stage.

It’s important to seek help before you get to this stage. Speaking to a mortgage broker is a good idea, as they can help you understand your options and offer alternatives which might prevent your house from being repossessed.

How mortgage arrears can impact your family and wellbeing

Falling into mortgage arrears can have a significant emotional and psychological impact on you as an individual and your family. Financial stress can quickly affect various aspects of life, including relationships, mental health, and overall wellbeing.

Here’s a deeper look at these effects and suggestions for coping.

Emotional and mental health effects

Financial difficulties, such as mortgage arrears, are one of the leading causes of anxiety, depression, and stress. Common psychological effects include:

• Anxiety: Worrying about losing the family home can cause ongoing stress and sleepless nights.
• Depression: The feeling of being overwhelmed by debt can lead to hopelessness or isolation.
• Fear and panic: The prospect of legal action, repossession, or eviction may create a sense of urgency and fear, which can impact decision-making.

Impact on family dynamics

Mortgage arrears can create tension and conflict within families. For example:

• Relationship strain: Couples may argue about finances, leading to blame or misunderstandings about spending habits or responsibilities.
• Children’s wellbeing: Children may feel the emotional weight of their parents’ financial worries, even if they don’t fully understand the situation. In some cases, the threat of losing their home can disrupt their sense of security and stability.

Support services for families

There are several organisations and resources designed to provide support to families facing financial hardship:

• StepChange Debt Charity: Offers free, impartial debt advice and can help you negotiate with your lender.
• Citizens Advice: Provides guidance on managing debt and understanding your legal rights.
• Mind: Mind is a mental health charity that offers mental health support and advice, including coping strategies for financial stress.
• Relate: A relationship counselling service that can help families or couples cope with the strain caused by financial difficulties.

How a mortgage broker can help

It is recommended that you seek professional advice from a mortgage broker before deciding how to resolve your arrears.

A specialist bad credit mortgage broker can talk you through the options available to you and help you understand the full implications of mortgage arrears. A mortgage broker could help you find a solution with your lender or remortgage and move to a more suitable agreement to ease your financial burden.

We offer a broker-matching service that will quickly assess your needs and circumstances to pair you with the ideal advisor. Call 0330 818 7026 or make an enquiry, and we’ll set up a free, no-obligation chat between you and a broker we’ve handpicked for you today.