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Dealing with Mortgage arrears
In addition to your main mortgage, you may have other additional mortgages (also known as secured loans or second mortgages).
If you fail to make the regular repayments on your mortgage or secured loans, the lender could ask the court for possession of your home so that they can sell it to pay your outstanding debt. You must check any loan agreement to see if the loan is secured against your home or other property – if it is, it must be treated as a priority debt.
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When should I contact my lender?
Immediately! Do not delay in contacting your lender to explain your difficulty. It is never too late to come to an arrangement. Where possible, you should complete a personal budget to support the offer you are making – if you are feeling overwhelmed and you cannot face contacting your lender, then you should seek professional advice straight away – for more information on where to get advice, please click here
How much will I have to pay?
There is no set amount, however, you will usually have to offer an extra monthly payment to clear your arrears, while also maintaining the regular minimum repayments to keep the arrangement going. The lender will normally ask for the arrears to be cleared over a period of 1 to 2 years, but longer periods may be negotiable.
If you cannot afford to clear the arrears within the time suggested by the lender, explain why not and start paying an amount which you can afford.
If you are receiving either Income Support or Income-based Job Seekers Allowance you can have a standard amount deducted from your benefit. This will be paid directly to your lender to ensure that your mortgage arrears are paid. Your nearest Citizens Advice Bureau will be able to tell you the current figures and the maximum amount that can be deducted from benefit.
You can also use these amounts as a rough guide of how much to offer if your income is around the benefit level – however, if your income is a lot higher than this, then you will probably have to offer more money to pay your arrears, and there is no set formula of what will and will not be accepted by the lender.
If you are receiving any other form of welfare benefits, such as the Contribution-based Job Seekers Allowance, deductions can only be made from your benefit in certain circumstances, so seek advice.
But what if I can’t afford any repayments?
Occassionally, depending on the type of mortgage or secured loan that you have, you may be able to negotiate another form of payment arrangement to avoid any legal action from taking place, for example:
- Making ‘interest-only’ payments for a short period of time
- Increasing the term of the loan to spread your repayments over a longer period of time
- Converting the repayment method from a capital and interest mortgage to an interest only mortgage (thus reducing the regular repayments) or vice versa (to ensure that the full amount is repaid at the end of the term)
- Reducing the endowment premiums (if applicable) on a temporary basis
We recommend that you seek professional advice to discuss your options and the implications involved before you attempt to negotiate another form of repayment arrangement to your lender.
What if my lender won’t agree to my offer?
If your lender refuses your offer of repayment because it’s too low, start paying what you can afford (which should be the normal mortgage or loan repayment, plus an amount towards the arrears).
This will help if you have to go to court, as it shows that you are willing to try and repay the debt, and your creditors will always prefer to receive some form of payment (no matter how small) than none at all.
What if my lender takes me to court?
If your lender applies to the County Court to repossess your home, this does not mean that you will be automatically evicted. If you can show the court that you will be able to clear the arrears within a ‘reasonable period’ (which could be between 2 and 12 months or the remaining term of the loan), the court will probably allow you to stay in your home – although there are no guarantees.
It may also be a possibility to request a reasonable time, for instance 6 months, to enable you to sell your property if you can show that you will be able to clear the outstanding loan amount from the proceeds of the sale and that you have a good chance of selling your home.
If you have been given a date for a court hearing, or if you have already been to court and you are finding it difficult to keep up the payments which the court has ordered you to pay, keep paying as much as you can comfortably afford, and seek professional advice as soon as possible – for more information on where to get professional help, please click here
If your lender’s application to repossess your home is successful you may still be able to save it or you may be able to apply to your Local Authority (council) to be re-housed – however, you should seek professional advice immediately.
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