What happens if I fall behind on mortgage payments?

1st Jan 2015 Managing your Money

If you are struggling to pay your mortgage, then you need to take action. Your home loan is one of your priority debts, along with taxes, utility bills and council tax, which need to be paid before any other bills. Here’s what to do if you don’t have enough money to cover the cost of your monthly instalments.

Contact your lender

When you realise that you're getting into difficulties, you should contact the bank or building society with whom you have your home loan.

Lenders have special departments to deal with borrowers who are in default, and the sooner you let them know you are having problems, the quicker they can help you.

It’s in your lender’s interest for you to keep paying, so they want to find ways to help you keep up with your loan. Some possible options are:

A freeze on payments for a set time
Extending the length of your mortgage so you pay smaller instalments for a longer time
Altering the mortgage for a short time from repayment to interest only

Try to keep paying

If you're having difficulties, then phone your lender before you fall into arrears, and say you need help with rescheduling your payments. They will want to help. Under the banking code of conduct, they are obliged to treat you fairly.

It’s a good idea to try to keep up with at least a minimum payment. This shows you are trying to pay, which is good for your credit record. Demonstrating that you keep up with payments rather than going into default will improve your chances of getting credit in the future.

A credit record which shows you stopped paying your mortgage may affect the way other potential lenders assess your ability to pay, and therefore your suitability for a loan.

If you want to check your credit record you can ask for your £2 statutory credit report from one of the credit reference agencies. It will show your credit history and public and private information recorded in your name. Credit reference agencies include Experian and Equifax.

Prioritise your debts

If you are finding it tough to pay your mortgage then you are most likely having difficulties with other bills, too.

It’s important to make sure that your mortgage is paid first, before other debts such as:

Credit cards
Loans
Bank overdraft

If you are short of money, then talking to the companies to whom you owe money is a good option, as they may be willing to reduce or freeze payments for a short period.

If you don’t feel confident about doing this on your own, or you need more advice, then you can contact a free debt counselling service. They won’t judge you, and they are very experienced at offering advice, which is free and confidential. You don’t need to pay for debt advice. It’s best to go to a charity rather than a debt management agency as you will receive impartial advice.

Debt charities include:

The counsellor will be able to help you research and apply for any benefits that you may be entitled to. If you are on certain government benefits such as income support, you may be able to get help towards your mortgage interest payments.

Draw up a budget

If you do go to a counselling service, they will work with you to draw up a budget. It will cover priority debts and payments, and enable you to set a limit on spending so that you have more disposable cash with which you pay off loans and bills.

You can also do this on your own, using the budget planners available online. Some good online calculators include one from the Citizens Advice Bureau. This takes around 30 minutes to complete but is comprehensive and is time well spent:

National Debtline has a good online budget calculator. If you are planning to see a debt counsellor it is useful to be able to fill in and print out a budget calculator so that the adviser can see where your money is going at present.

Take action early

The important thing to remember is that debt can be sorted out and that you don’t need to cope with it alone.

It’s better to admit to yourself that you are having problems, and take action as soon as possible. That way you can begin taking steps to sort out the problem and start to take the worry away. The longer you leave it, the more interest payments will mount up.

If you are already in arrears, then write to or call your lender and explain the situation. Try to offer to make at least some payment each month in order to show goodwill, and to protect your credit rating.

You can either negotiate directly with the lender yourself or ask for help from a debt counsellor. Either way, it’s best to be honest and upfront with your lender. They can’t help you if they don’t know why you are not paying.