What to do if you have problems paying your mortgage

There are many reasons why you may suddenly find yourself struggling to pay your mortgage. From illness and injury to unforeseen financial issues, unemployment and world economics. Whatever the reason you’re unable to get yourself back on the right track with those all-important mortgage payments, ignoring them won’t make the problem go away – and can make it worse over time.

So, what should you be doing if you’re having problems making ends meet for your mortgage payments? Here are some of the steps that you can follow to get yourself back on solid ground financially, and ensure there are no long-term problems for you when it comes to the roof over your head.

Get in touch with your mortgage lender

This may seem like obvious advice, but telling the people you borrow money from that you can’t pay them back right now is daunting and anxiety-inducing for anyone. But writing that email, picking up the phone or launching that live chat is the first step to resolving your mortgage issues, and it’s a must to let your mortgage lender know what is going on.

In the UK, it’s a requirement that lenders, including mortgage lenders, speak to you about options for your debt. After all, it’s in the lender’s best interests to reach a positive conclusion, even if it isn’t your original agreement. With the support of a lender, you can then work together to set up an agreement or arrangement for payment that works for you, and won’t leave you falling further into that financial hole.

If you are currently in arrears by one or more payments, communication is the best thing you can do. From there, your lender must give you reasonable time to make up the shortfall and be upfront about any charges that may apply. Repossession is one of the top worries for homeowners behind on their payments. But remember that this is the last resort rather than the first step for lenders and they must give notice before this happens.

Check if you already have insurance in place for your mortgage

If you currently have a mortgage against your property, there is a possibility you may also have PPI or Payment Protection Insurance. While we’ve heard plenty of bad things about PPI on the TV and in the news, in the case of mortgages, built-in insurance can help you make those mortgage payments should you be in an accident, become ill or find yourself unemployed.

Dig out your paperwork for your mortgage, and the details of whether you have this particular insurance should be there in black and white. If you can’t find the information, you can always touch base with your lender – or a broker if you used one – to find out if you did take out PPI insurance as part of your mortgage or not.

Make a budget and cut costs wherever possible

Unnecessary or uncontrolled spending can leave you with less money in the bank than you need for your essential bills – like your mortgage, electric or gas bills or loan repayments. If you’ve had a sudden dip in income, this can lead to even more problems if your spending habits don’t change. Write up a complete budget, and start looking at things you can cut back on.

Whether it’s unused subscriptions, expensive beauty appointments, take-aways or any other ‘wants not needs’ costs, cutting back can be the key to having that money for your mortgage every single month. You can even cut back on essential expenses by switching your gas, electric and internet to a new, cheaper provider to by reducing your mobile phone bill. Be careful about what you cut back on – things like car insurance, life insurance and food are all essentials, and still need to be paid every single month.

Research if you can access additional help to make your payments

If you’ve been laid off from work or have a long-term illness, then you may be eligible for housing benefits that could help cover the cost of your mortgage—the GOV.UK website has a benefits calculator that you can use to figure out what you might be entitled to, or you can pick up the phone and speak to someone directly about the benefits you could receive.

Contact a counselling service or charity for those struggling with debt

If you’re struggling with money, it can be challenging to see the light at the end of the tunnel. In those cases, an outside perspective can help you get to a more positive mindset, allowing you to get to work paying off those essentials – like your mortgage. Citizens Advice, Shelter and StepChange all offer counselling and advice for those struggling with debt and money issues, and it’s well worth getting in touch with them if you need the extra support.

If you’re struggling to pay your mortgage, your mind often jumps to the worst-case scenario. But there’s plenty you can do before you have to resort to selling your house – and with a little willpower and insight, you might be better off than you think. Thousands of people struggle with their mortgages each day, so when it comes to seeking help and support, you definitely won’t be the odd one out.

How does remortgaging work?

There are many reasons to want to remortgage.

One of the most common is to take some of the cash invested in your property to use for other purposes. Other people want to find a better lending deal; one that makes monthly outgoings more manageable or offers a more flexible arrangement for example.

Either way, understanding ‘how does remortgaging work?’ can help you to decide if it’s the best route for you.

What is ‘remortgaging’?

When you come to the end of a fixed-term deal on your existing mortgage or find that its structure no longer suits you, some lenders will find ways to continue your mortgage with new terms and rates applied.

However, remortgaging literally means starting the process again on your existing property. Either with a different lender or with the same lender under a differently structured arrangement.

What are the benefits of remortgaging?

You may have a lot of cash in your bricks and mortar! To free up that money to meet debts, pay for major purchases or make changes to your property, one option is to remortgage. You replace your existing mortgage with one that decreases your ‘deposit’ and increases your loan.

Alternatively, remortgaging can be the best way to find a more up to date or beneficial way of paying off the money you owe on your property. By ‘shopping around’ you could find a deal that reduces your monthly outgoings with a better rate of interest, or which enables you to lengthen the term of your loan, for example.

Also, there are times when existing mortgages prove too restrictive in terms of investing lump sums to pay them off quicker. You may want to remortgage so you can increase your equity, reducing your payments in amount or duration.

What do remortgaging providers look for?

Qualifying to remortgage your home is along similar lines to applying for your original mortgage. However, don’t assume that the criteria are exactly the same. It could be that lending terms are tighter now, compared to when you first bought your home, as part of a national campaign to help people manage debt better.

The sort of information lenders will review are your income, age and credit rating. They are looking for evidence that you can meet remortgage payments reliably and without causing financial hardship.

What should you look for?

It’s important to spend time comparing qualifying criteria, interest rates and the different terms and conditions offered by lenders.

Taking professional advice on remortgaging can help pin down an arrangement that best matches your financial status and goals. Incidentally, if you do seek help in choosing a remortgage product, it provides you with a degree of protection. If your new mortgage proves flawed in some way, you can complain to the Financial Ombudsman Service (FOS) about the advice you received.

When is remortgaging unwise?

Remortgaging is not suitable for everyone. Especially when you look at the question ‘How much does remortgaging cost?’.

There are often fees charged to progress your new mortgage deal. Check they don’t cancel out any savings you make on monthly payments, for example.

Also, consider whether your new mortgage eases your financial burden in the short term only. Could your mortgage payments rise steeply after an initial period, leaving you worse off than with your original mortgage?

Something called the Annual Percentage Rate of Charge (APRC) can help you to measure different products against each other, and your existing loan. It is a system of calculating interest rates for comparison purposes, that includes admin fees.

There is another important cost you need to use in your calculations too. Does your existing mortgage include an early settlement or exit fee? By paying off your loan sooner than expected to begin the new arrangement, you could face a substantial ‘penalty’ – as much as 2 to 5% of the outstanding amount.

How much can I remortgage my property for?

As mentioned above, the lending criteria depends on evidence of your ability to meet monthly mortgage payments for the full term of the loan period.

As a general rule of thumb when considering remortgaging you need to find your property’s current market price, and then calculate something known as ‘Loan to Value’.

For example, when you bought your home it was worth £100,000 and you borrowed £80,000, putting a £20,000 deposit down. Over the years, you have paid some of that back, and you now have a mortgage of £65,000.

However, your property has risen in value and is now worth £110,000.

Take your outstanding mortgage amount and divide it by the current value of your property, then times it by 100. Using the above example, this gives you a Loan to Value of 59% and shows that you have a considerable amount of cash invested in your property.

The lower this percentage is, the more likely it is that lenders will offer you a range of remortgage products with favourable interest rates. If your loan to value rate is high – such as 90% or more – you may find it difficult to find a lender willing to offer a new mortgage arrangement.

When to start

Give yourself time to do the research and find the right product for you – such as two or three months before your fixed term arrangement ends or before you need the equity from your property.