What homeowners should do if struggling to pay the mortgage

As a result of the Bank of England’s base rate increases over the last 18 months, monthly mortgage payments are becoming increasingly unaffordable for some mortgage holders.

While those on variable rates have seen gradual increases, it’s people coming off five-year fixed rates that have probably had the biggest shock if they weren’t aware of the forecasted rise in mortgage rates.

In 2018, there were fixed rates available for under 2%, whereas today’s best rates are around double that – for both fixed and variable mortgages at 60% LTV – meaning some borrowers may have to pay twice as much as they were.

So, if you’re struggling, you’re not alone by any means. The positive news is that unlike in the recessions of the early ‘90s and mid 2000s, lenders these days only tend to repossess as a last resort and will generally do what they can to help you stay in your home. A recent example of this was during the pandemic, when there was a ‘mortgage holiday’ scheme that allowed homeowners who had been financially affected to pause their repayments for up to six months. Within just the first three months of the scheme, one in six mortgages was subject to a deferral.

If you have already defaulted or know that you won’t be able to make your next mortgage payment in full, you should get in touch with your lender immediately, to keep any financial penalties or other consequences to a minimum. Again, they are there to help and the sooner you can discuss how to tackle the situation, the better.

Your next step – regardless of what your existing lender may be offering - is to speak to a broker that has access to a wide range of mortgage products. They will be able to see very quickly whether there’s another product you could switch to that would save you a significant amount of money each month and should be able to talk you through your range of options.

What help could I get?

Each lender will have their own terms and what they’re prepared to offer will depend on your personal financial situation and level of borrowing. But here are some options that your broker may be available to negotiate for you to make your mortgage payments more affordable:

Extending your mortgage term

A longer mortgage term would reduce the amount of capital you are obliged to pay back each month. Be aware that this means you will be carrying mortgage debt for a longer period of time and will also end up paying more in interest over the extended term.

Switching to interest-only

If you have a repayment mortgage, your lender may agree to switch you to interest-only for a period of time, which could dramatically reduce your monthly payments. However, you will still have to repay the capital at some point, so check how your lender proposes to structure that.

Reducing your payments

Another option is to simply reduce the amount of your payments for a while – although, as above, you will have to make up the deferred amount.

Taking a payment ‘holiday’

If you’re in short-term difficulty but are confident that your finances will improve in the near future, you may even be able to take a complete break from your monthly payments, as many people did during the pandemic.

Be aware that if you take a payment break or reduce the amount of capital that you pay back each month, interest will continue to accrue on the total amount still owed to your lender, meaning you will pay slightly more over the whole term of the mortgage. You’ll also need to check how your lender will reallocate the amount you’ve deferred. Usually they will either extend your mortgage term or just increase the remaining monthly repayments.

Finally, if you have other more expensive debts that are contributing to your overall financial issues, it’s worth discussing with your broker whether you might be able to remortgage and release equity to pay off those other debts, effectively consolidating all your debt into your mortgage, which is still a relatively cheap way of borrowing.

If you’d like to speak to a broker, the experts at our sister company, Mortgage Scout will be very happy to help you find a mortgage payment solution that works for you. Simply get in touch via the Mortgage Scout website and remember that you only pay for advice if you take out a mortgage  – the work to recommend a mortgage is free of charge.

You may have to pay an early repayment charge to your existing lender if you remortgage.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed.
MAB 15783