‘Repossession is a last resort’: Five options if you’re struggling with your mortgage
Millions of homeowners are worried as the cost of living bites while mortgage rates are heading north. Here are five options if you’re struggling to meet monthly payments.
The Bank of England has raised the base rate seven times in a row since December 2021 where it now stands at 2.25%. However, the market is pricing in hikes to 6% next year.
With every 1% increase in the base rate adding an average of £50 to monthly mortgage payments, it’s no wonder millions of homeowners are worried about keeping up with outgoings.
However, trade association UK Finance – the voice of the banking and finance industry – said that home possession is only ever a last resort.
It urged lenders to show flexibility to borrowers in financial difficulty and said that repossession should only come after tailored support is exhausted, and after a thorough court-based process has carefully considered a borrower’s individual circumstances.
Contact your lender as soon as possible
A UK Finance spokesperson, said: “Lenders stand ready to help customers who might be struggling with their mortgage payments. There is a range of tailored support available and possession is only ever a last resort. Anyone who is concerned about their finances should contact their lender as soon as possible to discuss the options available to help.”
UK Finance urged homeowners not to put off contacting their lender – even if all payments are currently up to date – but think they may face payment difficulties.
And borrowers shouldn’t cancel any direct debits as this may result in missed payments which are reflected on credit files.
Once you contact your lender, it will ask questions about your income and outgoings to understand your financial circumstances.
Tailored support will then be offered which will be based on what you can afford to pay.
Depending on your circumstances, you could be offered one of the following:
- Part payment plans
- Mortgage term extensions
- Temporary transfer to an interest-only mortgage
- Deferral of interest due
- The addition of what is owed to the total mortgage balance (known as capitalising).
Whatever option is chosen, the lender will explain how it will affect your credit file.
Repossession is a last resort
UK Finance said repossession will only be taken if a payment arrangement cannot be agreed. Even if court action is started, it doesn’t necessarily mean you will lose your home.
Alternatives include a voluntary sale and rehousing options.
For buy-to-let borrowers, UK Finance explained lenders may use a ‘receiver of rent’ which allows the tenant to remain in the property if they are keeping up with rental payments.
Meanwhile, for anyone struggling with mortgage payments because of a recent life event such as illness or redundancy, check to see if you’re covered by insurance.