You hear loads about the American Dream, but no one really talks about the British dream, if there is such a thing. However, should marketing gurus up and down the land strategise a set of actions that relate to following some kind of British Dream, owning bricks and mortar would be at the very top (closely followed by unlimited access to tea).
But what happens when those dreams turn to nightmares, and homeowners with a mortgage can no longer keep up with their payments? It’s a situation that no one wants to find themselves in, yet 1.4 million households struggle to meet the demands set by the lender.
Constantly worrying about arrears and the possibility of repossession isn’t a nice feeling. But it can be avoided, even if you find yourself in a position where you know you will struggle to keep up with payments. And we’ve put these handy tips together for you just in case you’re feeling the burden of paying your mortgage.
What is mortgage arrears?
You are in arrears when you have missed your mortgage repayments and payments are overdue. The most important thing to do at this point is to alert your lender to your current circumstances. Unfortunately, many who fall into arrears don’t contact the mortgage provider, thus increasing pressure on themselves.
Your mortgage lender can advise on the options available to you. It’s also important to know that you do have options, no matter how helpless or stuck you might feel in that current moment. From government help to payment holidays, there are several courses of action that you can take.
Support for mortgage Interest is a government scheme that helps people out when they’re struggling with repayments. Under the initiative, the government repays the mortgage interest, leaving you with only the initial borrowing to pay back. There are some stipulations, however. If you’re eligible, the government will pay the interest on the first £200,000 of the mortgage.
There is a level of interest on the government loan (currently at 2.61%), that you will eventually repay. However, the government help will provide you with valuable time to catch up on your payments.
Switching to an interest-only mortgage
Another route involves switching to an interest-only mortgage. This isn’t a long-term solution as you will only be repaying the interest part of the mortgage, and eventually you will have to go back to paying the mortgage itself, on top of owed arrears, but it can work to your advantage in the short term with lower monthly repayments. Before you choose to switch to an interest-only mortgage you should make sure of your ability to repay the original amount borrowed, as not doing so would ultimately only displace the problem and will still see your house be subject to repossession.
Extend your mortgage term
One of the most straightforward and simple ways of addressing the issue of being unable to pay back your mortgage is by extending the term of the mortgage itself. In doing so you will reduce the monthly mortgage payments, making them more affordable. However, yet again, as with switching to an interest-only loan, you have to consider whether you will realistically be able to continue repaying the mortgage over a longer time frame. If for instance you will soon be retiring, you should evaluate your ability to continue payments then.
Take a payment holiday
Getting a payment ‘holiday, in other words a break from paying your mortgage for a few months, is yet another solution to the inability to repay your mortgage.
You will eventually have to make the repayments on your mortgage before the term ends, though a break from payments – especially when not being able to repay your home loan – can give you the breathing space to get back on track to complete your mortgage payments.
If none of the suggestions above are available to you, your lender may offer an assisted voluntary sale scheme. In doing so the lender will give you extra time and assistance to sell your property, after which you will be able to pay off your arrears.
Although insuring your mortgage is not available once you are already unable to pay off your mortgage or are having financial troubles, it is a good precautionary measure. In case you do find yourself unable to repay your mortgage, the mortgage payment protection insurance (MPPI) can be used and will cover the whole of your loan repayment every month.
Can the bank repossess your property?
The worst-case scenario when being faced with mortgage payments that you are unable to pay back is having your property at risk of repossession. When you are unable to repay your mortgage, the lender has the right to take your home instead, doing so by going to court. Repossession is not ideal for lenders either, so there are a few ways to circumnavigate a dreaded repossession. You can simply start by speaking to your lender, or as an alternative seek debt help via a number of charitable debt-help agencies such as ‘National Debtline’, or through a qualified professional who will potentially help you come up with an effective debt management plan.