How to cope with Mortgage arrears A Shelter Cymru advice booklet Mortgage Arrears This advice booklet provides information on how best to cope with mortgage arrears. It will help anyone who has a mortgage on their house or flat, but is not designed to cover business loans or business premises. Your home may be repossessed if you do not keep up repayments on your mortgage. The law is complex and if you do not act when the mortgage arrears arise, you could lose your home. This booklet is only an introduction to the law in Wales. If you need more detailed information, you should get advice from a Shelter Cymru adviser. Send us an email: https://sheltercymru.org.uk/email-advice/ or call us on 0345 075 5005 Alternatively, contact one of the other organisations listed at the back of this booklet. If you live in England, Scotland or Northern Ireland the law is different and you should contact Shelter, Shelter Scotland or the Housing Rights Service. Registered charity number: 515902 Updated Sep 2018 i www.sheltercymru.org.uk Contents Mortgage arrears 1 Working out your options 1 Talk to your lender 2 Keep making mortgage payments 2 Easy steps 2 Ways to pay your arrears 3 Shared ownership mortgages 3 Selling your home 3 Other options available to you 4 Claiming on insurance policies 4 Changing your mortgage lender 4 Remortgages/further loans 4 Increasing your mortgage 4 Can I rent out a room, or my whole home? 4 Claiming welfare benefits 5 Government mortgage rescue schemes 5 Private mortgage rescue schemes 5 Relationship breakdown, death, incapacity and bankruptcy 6 Negative equity 6 Should I hand in the keys? 6 Regulation and complaints 6 Your lender is taking you to court 7 Court forms 7 What the lender must do 7 Can I get legal aid? 7 Help at the court 7 Do I have a defence? 8 What will happen at court? 8 The possible outcomes 8 Can I do anything after a possession order has been made? 9 Bailiffs’ warrants and bailiffs’ notices 9 Costs 9 Sale by the lender after repossession 10 Can I apply as homeless? 10 Tenants of borrowers 10 Appendices 11 ii Mortgage • What resources can you draw on? • Can you claim on a mortgage payment protection plan? arrears Do you have a redundancy payment, savings or other assets? A mortgage is a loan that is ‘secured on’ your home. Can you claim state benefits? There are many reasons for taking out a • What is the property market like? mortgage. The most common reason is that you want to buy a home. You cannot afford to buy it • Are homes selling well, or is the market outright, so you have to borrow from a mortgage difficult? lender such as a bank or building society, and you can do this by a mortgage. This means that • Are you using your home fully? the lender takes a ‘legal interest’ in your home. For information about the different types of • Could you live somewhere smaller or in a mortgage see Appendix 1. cheaper area, or could you rent out a room? If you fail to make the mortgage repayments, then • Do you have other debts? If you do, get the lender can take steps to make you move out, advice about dealing with all your creditors. and sell your home. Luckily, problems can often It is essential that the payment of your be resolved before this stage is reached. mortgage, utility bills and council tax take priority. Mortgage arrears If you fail to make mortgage payments when they You should also work out your budget to see are due, the missed payments are called what you can afford, and to see whether you can ‘mortgage arrears’. Mortgage arrears can lead to make savings on non-essential spending you losing your home. However, if you speak to (eg gym membership, meals out). The budgeting your lender as soon as you have financial forms in Appendix 2 can help you do this. problems and you get advice when you need it, you may be able to save your home. Most lenders will give you a reasonable amount of time to pay what you owe. Working out your options First, you need to ask yourself these questions: • Are your difficulties likely to be long or short term? • If you face redundancy, or have an illness, will you be able to return to work and, if so, when? • Can you take temporary or part-time work to ease financial pressure? 1 www.sheltercymru.org.uk Talk to your lender Keep making mortgage payments It is important to talk to your lender as soon as you Making mortgage payments has to be a top can if you have arrears or have financial problems priority, as you risk losing your home. It is that could lead to arrears. There are essential to keep paying as much as you can things that your lender can do to help you, and afford. This will help to stop your mortgage your lender is more likely to help if you explain the arrears from rising too quickly. It will also show problems you are facing. Don’t ignore their your lender that you are serious about trying phone calls, emails or letters as this will only to tackle the problem. The more you get into make matters worse. Don’t be put off because arrears on your mortgage payments, the more you think your situation is hopeless. There is likely you are to lose your home. often a solution, but it usually involves talking to your lender. Most lenders see taking you to court If you have a large sum available, like a as a last resort. redundancy payment, it may be tempting to pay off some, or all, of your mortgage. This may not You can telephone first, but a meeting at a local always be sensible, because you may need branch of your lender or a longer telephone money for any remaining mortgage payments, discussion may be necessary at a later date. The household bills, and perhaps for retraining or first person you speak to is not necessarily a setting up a new business. Also, you may have person who has the knowledge or authority to to pay a penalty if you pay your mortgage early. help you. You may need to explain the problems you are facing more than once. It is not advisable to use your credit card to pay your mortgage. The interest rates for borrowing You should be prepared to answer questions money on a credit card are high, much higher about your circumstances, for example: than the rates you pay on your mortgage. If your credit card bill is not paid, your credit card • details of your income, outgoings, debts and company could apply to the court for a ‘charging savings – the budgeting forms in Appendix 2 order’ on your property. If you still do not pay can help you set these out what you owe, the credit card companies can go back to court for an order to force a sale of your • what payments you can make home to recover the debt. • any steps you may have taken to increase Easy steps your income and to make savings. There may be steps you could look into, such as: If you can, write down what you tell your lender and what you agree to do. Make sure you • You may be able to make changes to your are honest and realistic. It will not help you if you mortgage, for example, make reduced agree to make payments that you cannot afford. payments for a while or switch to a differentinterest rate. You may be able to Make sure that your lender has your latest change your payment date from early in the contact details so that they can get in touch with month to later in the month. This could help you easily. you budget if you move the mortgage payment date to shortly after your pay day. If you fail to contact your lender, you can expect to receive reminder letters and for the lender to • Your lender may have a more suitable begin legal action to recover the arrears. The mortgage. You may need a flexible costs of this will be charged to you. mortgage if your income fluctuates, or a fixed rate if you are on a fixed income. You usually Lenders are usually helpful, and should be able to have to pay a fee for a new mortgage and provide a list of thecosts of various options open a charge for bringing the old mortgage to to you, so that you can compare them. an end, so think about whether a change is worth it. 2 • If there are any errors on your mortgage of the loan. Often the surrender value is a account, talk to your lender as early as reduction in value of the endowment, so you possible. might sell to one of the companies that specialise in buying endowments at a higher • Can you find cheaper contents, buildings, life price than the surrender value. insurance, or mortgage protection insurance? The sooner you contact your lender the more options are likely to be available to you. The Ways to repay your arrears options available can depend upon the type You will have to pay, over a reasonable period, of mortgage you have. These options will all cost the arrears that have built up as well as your you more money over the term of the mortgage.