For homeowners, managing a mortgage can be difficult in times of financial hardship. If you have lost your job, or had a sudden change in circumstances, you can quickly fall behind in your mortgage payments and go into arrears.
This post will talk you through some of the causes of mortgage arrears and what you can do to get your mortgage back-on-track once more.
If you have a mortgage and you are unable to make a monthly mortgage payment, for any reason, your mortgage will run into arrears.
With every mortgage payment, a percentage of the sum will be used to pay off the mortgage interest. Therefore, if you fail to pay the monthly instalment, the missing interest must be added to your mortgage loan, thus increasing the total amount of money you owe over the life of the mortgage. Once you have factored this is in, it is easy to see how falling into mortgage arrears can quickly ‘snowball’ and land you in dire financial straits.
Your lender has the right to take ownership of your property and sell it, if you default on your mortgage loan. There is a framework for this process set out in the Code of Conduct on Mortgage Arrears (CCMA). There are steps you can take if you do fall behind with the Mortgage Arrears Resolution Process (MARP). The most important thing to do is notify your lender as soon as possible and together, plan on how you can catch up with your payments.
Please note: As well as catching up on the amount you owe in arrears, you will also have to ensure that you continue with your normal monthly mortgage payments.
Failure to keep up with your mortgage payments will lead to legal proceedings and your home may be repossessed.
Depending on how far behind you are and the terms of your mortgage arrangement, you may be able to find a way to cut down your mortgage interest costs for a short time and make up the arrears. Some of the things you may be able to try include;
See our Guide to Negative Equity for more information.
Please note: When you’re considering your options, you must think carefully about what you can afford, as the last thing you want to do is make your debt situation worse by overstretching your budget.
If you find your mortgage payments going into arrears, you must contact them as soon as possible to find a solution. Getting the advice of an independent financial advisor can help with this process.
Ignoring your lender’s calls and letters may incur extra charges, as they will continue to try to get in contact with you.
With any plan you propose, you may be asked to provide proof that this is a viable option. You may be asked to submit a Standard Financial Statement (SFS) consisting of;
Once this information has been collected, the lender will review your case and advise you on your new payment arrangement.
In the meantime, while your case is being reviewed, keep up with your mortgage payments with as much money as you can realistically afford. Regardless if your lender agrees to your plan, paying in small amounts anyway will work in your favour.
When negotiating with your mortgage provider, they should do what they can to negotiate with you and resolve the mortgage arrears situation. They should reconsider summoning you to court if you have done any of the following:
If you cannot come to an agreement with your lender, you may be taken to court for the arrears or for repossession of your home, or both. You cannot be forcibly removed from your home without a court order (if it is your main residence).
For this, you will get a ‘Claim Form’ from your county court, outlining exactly how much money your lender wants from you. The court will then send you a ‘Defence Form’ which you must fill out and return within 14 days. You must appear at the court hearing, or make steps to rectify your situation with the lender, before your court summons date. Most lenders would rather negotiate before it comes to this stage, so it is advisable to meet their demands, as far as possible, to avoid a court outcome.
If court is unavoidable, you will need to seek legal aid with a solicitor, or check if you are eligible for publicly funded legal support.
If your case is heard in county court, one of the following outcomes can be ruled;
You may be charged by the lender to cover the costs of them sending you to court. If there has been a mistake in your case, which is the fault of the lender, you may be able to avoid paying the costs.
Seek legal advice if you feel your case was handled incorrectly, as there may be the chance to appeal the ruling. You can also apply for an order to be varied, suspended or set aside if your circumstances have significantly changed (for instance, you may have inherited a large sum of money and can pay off the arrears).
Alternatively, you can apply for a Stay of the Warrant for Eviction. This is where you apply to remain in your home whilst you appeal your court order.
If it comes to your home being sold, and it sells for more than the cost of the loan (including interest on arrears), then you will receive the difference. Similarly, if there is a shortfall from the sale, you will need to make up the difference.
Please remember, your lender will only repossess your home as a final resort. If you do all you can to pay back the arrears, as well as seek legal advice, you should be able to avoid losing your home.
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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
IF YOU ARE THINKING OF CONSOLIDATION EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.
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