What happens if you stop paying your mortgage?
Mortgage firms and lenders have a specific procedure they must follow when you fall behind on your payments. The culmination of this procedure is repossession, but usually, this is very much a final resort.
Before they can start court proceedings against you, your mortgage lender has to follow certain rules set out by the Financial Conduct Authority (FCA). They must:
- Treat you fairly.
- Consider any request from you to change the way you pay.
- Give you a chance to pay off your arrears if you offer.
- Only start action against you if their other efforts to recover the money have failed.
What’s more, they also have to follow what’s known as the ‘pre-action protocol’. This is a set of rules laid out by the courts that describe how they expect the lender to pursue legal action.
If, for any reason, your lender hasn’t followed this protocol correctly, it may be possible to prevent a possession order being issued.
What should I do if I can’t pay my mortgage this month?
Before you do anything, get in touch with your mortgage lender or bank and let them know you’re not going to be able to make your payment.
Even if you’re struggling, your mortgage lender isn’t allowed to repossess your home while you’re actively negotiating with them about it – that’s why it’s so critical to start talking to them as soon as you know you’re going to miss a payment.
At this point, your lender should offer you some form of alternative to making your full payment this month. This may include:
- Changing your payment amount temporarily.
- Arranging a payment break.
- Granting you a deferral (making the payment later).
- Temporarily paying just the interest on your mortgage.
- Allowing you to take longer overall to pay off your mortgage.
There are some bills that are viewed by creditors as more serious than others. Usually, the least serious bills to miss are your utilities and mobile phone bill. The most serious is your mortgage.
With this in mind, it’s always worth prioritising your mortgage over other bills when you’re allocating your monthly budget.
If you’re struggling to manage your money with your current income, have a look at your bank statement and see if there are any non-essential outgoings you can cut.
Doing without the occasional coffee or your monthly TV subscription might not be much fun, but keeping your home should be your top priority.
It’s also worth checking if you have any payment protection insurance (PPI) in place. It’s a product that many homeowners are sold when they first take out a mortgage, and it’s easy to forget about.
If you have PPI, it could be vitally important if your situation means you’re eligible to make a claim.
If, for example, you’ll be missing your mortgage payment because you’ve had an accident, suddenly been made redundant or are unwell, PPI may cover your and help shield you from getting into debt until you get back on your feet.
Will mortgage companies let you skip payment?
If you don’t have any form of payment protection in place and need to take a break from paying your mortgage, you can ask your lender for a payment deferral or payment break.
You may need to confirm with them that your circumstances have changed, or your specific reason for taking a break. For example, you may have seen a sudden drop in household income because of illness, redundancy or a member of your household taking parental leave.
Payment breaks have been increasingly making headlines because of the coronavirus pandemic. At the time of writing, homeowners can request a three-month mortgage payment break from their lender until 31 October 2020.
What’s more, the FCA has ruled that lenders can’t initiate or pursue existing court action for home repossession until this date.
At the end of a mortgage payment break, you will have to pay back the money you’ve missed – but usually your bank will offer you an affordable way to do this.
Most commonly, you’ll simply extend your mortgage term by the number of months you took a break for, or the additional amount you’ve missed will be added to your monthly payments.
When you’re taking a payment break, it’s important to inform your lender – don’t just assume that you’ll be granted a break from your mortgage if you stop paying for a few months.
It’s also worth bearing in mind that while the FCA have ensured payment breaks during the pandemic aren’t included on your credit file, they caution that lenders can still find out about them.
How many mortgage payments can I miss before repossession?
Generally, as soon as you miss just one month’s mortgage payment you are technically ‘in arrears’ – but this varies between lenders.
Even though repossession is a lengthy process, just one missed payment is usually enough to kick-start the proceedings when it comes to your mortgage payments.
If you do fall behind with your mortgage payments, your lender must:
- Let you know the total amount of your arrears
- Detail the exact amount left to pay on your mortgage
- Allow you enough time to make up the missed payments
- Detail the specific payments you’ve missed
- Explain any charges that have been incurred
It’s your lender’s responsibility to notify you of this information within 15 days of you falling into arrears. And if they do intend to pursue repossession, they must give you reasonable notice of this in writing.
Repossession is very much a last resort for lenders. It takes a long time, and most will not go down this route until they’ve reasonably attempted other ways to get you back on track with your payments.
As soon as you know you won’t be able to make a payment, let your lender know.
Don’t wait until you’ve missed the payment – this can make a serious dent in your creditworthiness.
Even if you don’t have enough money to make a full month’s payment towards your missed payment, contact your lender and offer what you can afford.
It shows you’ve made an effort to take responsibility for the missed payment and will be looked upon far more favourably than if you choose to ignore the situation and fail to make contact.
When you do this, it can help to show them a copy of your household budget as proof you’re doing all you can.
Can you get a mortgage with arrears?
If you’re applying for a new mortgage and have missed a payment on your current mortgage arrangement, that’s a big deterrent for prospective lenders.
As with any missed payment, how seriously lenders will take it depends on how recently it happened.
If you’re currently in arrears with your mortgage, you could seriously struggle to find even a specialist mortgage provider who’ll be able to help.
It’s important to do all you can to make up missed payments and repair your credit file before making an application.
Any negative information on your credit report will have an impact on a mortgage application – whether you’ve missed or been late with a payment in the past or had something more serious like a default or CCJ added to your credit file.
How long do mortgage arrears stay on your credit file?
Even if you’ve missed or been late with just one mortgage payment, this information will stay on your credit file for six years. Arrears or very late payments may be annotated on your file with more information about how many months it took you to make up the payments.
Usually, the more recent the arrears, the more negative the impact on your credit rating.
If it’s been a few years since you were in arrears, a couple of missed payments may not matter as much to potential lenders as a recent missed payment that happened in the past 12 months.
How many payments you missed will also be a factor for lenders.
If you’ve had more than one missed payment recently, it could make applying for a mortgage a significant challenge, and you may have to seek help from a specialist lender.
Can late payments be removed?
It is possible to ask for late payments to be taken off your credit file, but it will come down to whether your mortgage lender decides to allow what’s known as a ‘goodwill adjustment’.
Their decision will come down to:
- How long you’ve been with your provider
- If you’ve been completely reliable with payments in the past
- The individual lender and their policies
When applying for a goodwill adjustment, you should explain to your lender your reasons, in writing, for the exceptional circumstances – for example illness, a sudden job loss or some other, unexpected, change in your situation.
It can help to include proof, like a doctor’s letter, notice of redundancy or bank statement. And of course, it’s a good idea to assure them that it was a one-off occurrence and it won’t happen again.
Can I sell my house with mortgage arrears?
Yes, you can still put your house on the market if you’re in arrears.
This could be a better option for you if your finances don’t have any chance of improving in the immediate future, and you’re planning to downsize to a more affordable property, live with relatives or switch to renting.
If you do decide to sell your home, your lender may be able to offer you the option of an ‘assisted voluntary sale scheme’.
This can take the pressure off and give you more time if owning your current property is no longer sustainable. It also helps avoid the trauma of repossession.
What can I do to improve my chances of getting a mortgage?
Even if you’ve struggled with your finances in the past, don’t give up hope of getting your own home.
It’s always possible to repair your credit score – sometimes it just takes a little time and effort.
First things first – figure out what your current credit score is – and if there are any areas for improvement on your credit file.
As well as the big four credit reference agencies; Crediva, Equifax, Experian and TransUnion, there are also some companies that will give you access to your credit rating for free, or for a limited time.
If you do have arrears, defaults, or any CCJs on your file, make sure they are correct and apply to you.
If you made efforts to pay them off, or they happened because of exceptional circumstances, it could be worth asking for a notice of correction to be added to your credit file.
Next, make plans to fix your credit. If you aren’t already on the electoral roll at your current property, this is a quick way to boost your credit file.
You can also apply for a credit card that’s designed to build up your credit – just make sure you pay it off every month.
It can be helpful to seek the advice of a mortgage broker – they’ll assess your circumstances and tell you which lenders are most likely to approve your application.
They may also be able to help you find ways to rebuild your credit score.
And while it can be limiting to apply for a mortgage when you have bad credit, there are specialist lenders out there who can help.
It’s worth remembering that once you do have a mortgage approved – and regularly make your payments every month – your credit score will begin to improve.
If you’re in a situation where you’re still in debt and struggling to control your outgoings every month, we can help. Pick up the phone and speak to a member of the Creditfix team, for free and in confidence, on 0808 253 2541.