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What to do if you can't pay your mortgage

What to do if you can't pay your mortgage
With interest rates rising, so are mortgage default rates. If you are worried about being unable to pay your mortgage, here is some essential advice
The Bank of England's Credit Conditions Survey 2023, published in July, found that mortgage defaults have seen their biggest increase since 2009. The survey also expects them to increase further in the coming months as the pain of interest rate spikes starts to hit homeowners with mortgages. 
We spoke to a number of people starting to feel the pinch. Ian (not his real name) has an interest-only mortgage. Up until June he was paying 1.46% on borrowing of £320,000—his monthly interest payments were £389. On top of that he was making separate capital overpayments. His new mortgage interest rate is 5.25%, making his monthly interest payments an eye-watering £1,400.
"Failing to pay your mortgage can have serious consequences"
“I can weather the storm short term, but long term this is unsustainable. I’ve cancelled everything: Netflix, holidays, meals out—you name it, and it’s no longer part of my life.” Ian is not alone; it’s reckoned 1.4 million people come off their fixed rate mortgages every year. 
Failing to pay your mortgage can have serious consequences, such as losing your home through repossession. It can also wreck your credit score, making it harder to borrow money in the future. 

What should you do if you default on your mortgage?

The most important thing is that you don’t take the “head in the sand” approach. You need to be proactive. Hopefully the advice below will give you some ideas.
If you think you are at risk of defaulting, contact your mortgage lender. It's crucial to keep them informed about your situation. They may be able to provide temporary solutions or offer alternative payment arrangements. For example, you may be able to negotiate a “mortgage holiday” or extend the term of the loan. Over the long term, with both of these options, you will end up paying more interest—but that may well be the lesser of two evils. 
Image of a businessman and woman sat at a desk
Contact your mortgage lender as you may be able to negotiate a "mortgage holiday"
It’s also important to seek professional advice from an impartial source. The Citizens Advice Bureau, housing charities or independent mortgage advisors should be able to provide free or low-cost assistance. Moneysavingexpert is also a great resource especially if you want to familiarise yourself with your rights as a borrower. 
"It’s also important to seek professional advice from an impartial source"
Also, follow Ian’s strategy: forensically examine your outgoings. What can you cancel and what can you reduce? Small monthly sums add up. Which financial obligations can you jettison and which ones are immovable? It’s vital you prioritise your mortgage payments over non-essential expenditure. 
Some homeowners may be eligible for help under the government’s Support for Mortgage Interest (SMI) scheme. It should be noted that this scheme is only open to mortgage holders in receipt of, or “treated as getting”, a “qualifying benefit”. The list of qualifying benefits includes Income Support, Income-Based Jobseeker’s Allowance (JSA) and Universal Credit. 
Image of a woman putting a coin into a piggy bank
Cut down on any unnecessary expenditure, and prioritise your mortgage payments
If you have mortgage payment protection insurance (MPPI) it may cover mortgage payments during times of financial hardship. Contact your insurer to understand the coverage and make a claim if applicable. But don’t hold your breath: most MPPI policies only pay out if you meet a narrow set of requirements. 
Finally, you could seek additional sources of income. Ian is considering getting a bar job for a couple of evenings a week. Think about your skill sets—what’s the most lucrative work you could secure? 

How long will the pain last?

Inflation is stubbornly high in the UK, even as it seems to be falling rapidly in most other developed countries. This means interest rates are likely to remain higher for longer. Now is the time to batten down the hatches and live a frugal life.
"Inflation is stubbornly high in the UK"
And who knows, maybe that will feel more fulfilling? 
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Banner image credit:  Image by Oleksandr Pidvalnyi from Pixabay

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