If you are struggling to pay your mortgage now, or you will be soon when your fix ends, what are your options?
Nearly 1.5 million mortgage fixes are ending in 2023. Many people will then face a new interest rate that is more than twice what they had been paying.
The FCA says:
if you’re struggling to pay your mortgage, or are worried you might, you don’t need to manage alone. Your lender has a range of tools available to help. Get in touch as soon as you have concerns, don’t wait until you are about to miss a payment.
This is important because the sooner you talk, the easier it may be to prevent arrears or reduce your problems even if you have a poor credit score. And more options may be available before you have arrears.
This article looks at what the “tools” are that may help you.
It does not cover the situation of “mortgage prisoners” – if your lender doesn’t offer new mortgages, see I’m a mortgage prisoner – what can I do?
The scale of the mortgage problem
Research from the Financial Conduct Authority (FCA) shows the scale of this problem:
- in June 2022, before mortgage rates rose sharply in the autumn, there were already 200,000 mortgages in arrears;
- the FCA expects an extra 350,000 borrowers may face mortgage difficulty by the end of 2024.
So more than half a million households are likely to be in difficulty with their mortgage over the next two years.
And mortgage cost increases will be coming on top of inflation that has already squeezed family budgets. Food prices are continuing to rise. Other essential bills have increased, including council tax, water, broadband and mobile contracts.
You aren’t alone in having problems with the mortgage. All mortgage lenders are expecting thousands of people to contact them and ask for help.
Before you talk to your lender
There are three steps to take, before talking to your lender:
- claim all the benefits you can;
- get a budget you can show your lender;
- give your mortgage priority over other debts;
These are important because when you can’t make the full mortgage payments, the more you can pay the easier it may be to reach an arrangement with your lender.
Claim all the benefits you can
There are more than a million people in the UK who are entitled to benefits that they are not claiming. Benefits have increased in April 2023 and some people that were not eligible before, will now qualify.
So make sure you are claiming everything you are eligible for – see this Turn2Us benefits calculator.
There is a benefit called Support for Mortgage Interest (SMI) – you may be eligible if you are getting Universal Credit, Pension Credit or some other benefits. SMI is a loan, not a grant, but you don’t have to make any repayments until the house is sold and it doesn’t show on your credit record.
If you are on Universal Credit, the waiting period for SMI has just been cut to three months. When you have just lost your job, SMI may not be of any immediate help to you, but it may be later. Your mortgage lender may be prepared to give you more support now, knowing that in 3 months you will have some extra help from SMI.
Get a budget sheet
A budget can help you see your situation more clearly and it can be shown to your mortgage lender and to other creditors.
This budget tool from National Debtline helps by:
- suggesting expenses so you forget any and converting everything into monthly amounts;
- working out which debts are priority and non-priority;
- producing a report to show lenders.
If your income isn’t regular – perhaps you are waiting for benefits to be paid or don’t know how many hours work you will get each week – this can feel rough and uncertain. But it is still useful.
Once you have done a budget, you can look at how you can improve your situation. Are there any expenses you can reduce? Any subscriptions you could cancel? If you have a partner, talk to them about budgeting options.
Your mortgage is top priority
Of course you know that! But did you know debts and bills can be divided into “priority” and “non-priority”? See What are priority debts? for details.
Your mortgage lender will expect you to prioritise your mortgage – it is more important than paying a credit card.
Paying the mortgage and your essential living costs such as food, energy, petrol, car finance, and clothes may leave you with little or nothing to pay to other debts. That’s OK when they are non-priority debts.
The budget sheet from National Debtline suggests the amount you can afford to pay to each non-priority debt. You need to talk to those lenders and explain you can’t make the normal payments because of your mortgage problem. Offer the lower amount on your budget and ask them to freeze interest and charges. Show them your budget sheet.
Non-priority creditors generally agree to accept less, even a token £1 a month. And they will usually stop adding interest and charges – if they don’t you can complain.
With a lot of creditors or if you are anxious about contacting them, talk to StepChange. They could set up a debt management plan (DMP) for you, in which case they contact your creditors and make the offers, not you.
These payment arrangements or a DMP harm your credit score but you probably don’t have any other sensible option. In a DMP, you will still be able to get a new mortgage fix from almost all lenders providing you don’t have mortgage arrears, see below.
Not enough money for the priorities and essentials?
When your budget shows that you simply don’t have enough money for all the essentials, you need to talk to a good debt adviser. This is now very common because of the rising cost of living. Citizens Advice say that half their debt clients are in this situation.
Don’t try to muddle through by borrowing more, it only makes things worse next month. If you are worried about your mortgage increasing in 9 months time, you need to make sure your finances are improving now, not getting worse slowly.
The help mortgage lenders can give
Different sorts of help
The range of tools lenders may offer include:
- extending the term of your mortgage – this means you repay the capital more slowly so your monthly repayments are lower. The lender won’t usually make an affordability check unless the mortgage will end after your expected retirement date.
Think about: this increases the interest you pay over the whole mortgage term but the reduction in monthly payments now may be more important for you;
- switching to interest-only – this would usually only be for a temporary period.
Think about: this reduces your monthly payments by more the later you are in your mortgage term – close to the begining most of your payments are interest;
- offering you a new fix – most lenders have agreed with the Treasury that they will not do an affordability check for a new fix if the rest of your mortgage remains the same – same amount, same term – and you do not have mortgage arrears. So you can get a new fix and not have to pay the high SVR if you have a poor credit record.
See Can I get a new mortgage fix with poor credit? for details.
Think about: if you are worried about your mortgage fix ending in the future, this ability to get a new fix means you should not put off try to sort out your non priority debts at the moment;
- temporarily cut the interest rate or agree to accept reduced payments – this would usually only be offered if you are unable to make the normal payments, not just because you would like them to be lower. It is more likely to be possible if you clearly have a temporary problem that will improve so you can return to normal payments.
What of those are your options?
Not all lenders will offer all of the options listed above. And they may restrict some help to people in specific situations.
The only way to find out what your options are is to talk to your lender.
It would be good if all lenders had to set out clearly on their websites what they do offer – but most don’t! So just because your lender doesn’t mention term extensions or not checking affordability if you only want a new fix does NOT mean that it isn’t available to you.
Some people are worried about telling their lender they are in difficulty. But unless you do, the lender can’t help you.
Just talking to your lender about your options will not make your situation worse. Andd it won’t affect your credit rating.
If your lender isn’t helpful
If your mortgage lender doesn’t suggest the sort of support you would like, talk to a debt adviser about this. Perhaps you could improve your situation. Perhaps showing the lender a budget worked out with a debt adviser will help.
You may also be able to complain to the Financial Ombudsman if your lender doesn’t give you appropriate support. Your debt adviser will be able to discuss if you have a good case and explain how to do this.
You have to take your mortgage problems seriously, but don’t panic:
- most lenders will be slow to think about repossession if you are talking to them;
- lenders should not repossess the property unless all other reasonable attempts to resolve the position have failed.
- Mortgage lenders can offer a wide variety of help, but you need to contact yours. Don’t be an ostrich and assume they can’t help you.
- Most people can easily get a new fixed rate from their current lender if they have no arrears – they shouldn’t be any affordability checks.
- You must prioritise paying your mortgage, even if this means paying little or nothing to your other debts.
- Talk to your local Citizens Advice – they can help you work out what to do and what to say to your lender.
- Lenders will generally be slow to repossess if you talk to them about your problem and ask for help.