Mortgage Arrears

Mortgage arrears occur when a borrower cannot afford to meet mortgage repayments every month. Being in arrears is a difficult situation, because monthly repayments are required and financial problems can swiftly arise.

As with any financial difficulty, communication between the mortgage lender and the borrower is essential. Consumers that contact their lender before falling into arrears can jointly plan on how to avoid payment difficulties before they occur. Mortgage lenders want to help borrowers out of repayment difficulty, and are legally bound to consider your case and treat you fairly.

When a borrower is worried about falling into arrears and contacts their mortgage lender, a plan of action should be agreed on. This type of payment arrangement will be designed to get the borrower out of payment difficulty, whilst ensuring the lender still receives payment. Each arrears case will be reviewed on an individual basis, with the payment history and gravity of the problem considered, the lender may suggest one of the following solutions. All of these have financial implications:

• Lowering repayment levels for a certain period of time
• Switching your mortgage to interest only
• Providing a ‘payment holiday’
• Increasing mortgage term to spread out repayments over a longer period.

For those borrowers that are already in arrears, your mortgage lender should suggest a repayment plan to pay off the arrears alongside your usual repayments. In some cases, if the borrower cannot manage this, the lender will allow a delay on these extra payments. This will depend on payment record.

A general rule of thumb when it comes to mortgage arrears is to pay as much as possible each month and keep up regular payments. A mortgage loan should be considered a priority, as failing to get out of arrears could lead to repossession of your home.

Mortgage protection insurance can help borrowers who fall into arrears because of sickness or unemployment, but the nature of the help will depend on the policy and the borrower. Some borrowers could be entitled to tax credits to aid their income.

For those in mortgage arrears, free and independent advice is provided on several fronts. These include the Citizens Advice Bureau, the National Debtline, the Consumer Credit Counselling Service (CCCS) and community legal advice.