Are you feeling the stress of struggling to make your mortgage payments each month or worried that you might? You’re not alone.
According to UKFinance.org:
- 93,680 UK homeowners (1.07% of all outstanding mortgages) were in arrears in Q4 2023. This was up 7% on the previous quarter and 25% year on year.
- Of these homeowners, the largest figure, 35,940, were in arrears of 2.5% to 5% of the balance. This was up 5% on the previous quarter and 36% year on year.
So, the trajectory of homeowners in mortgage distress is going in the wrong direction, it’s on the up. This is tied in with the rise in the cost of living and an increase in interest rates.
- 540 UK homes (.006% of all outstanding mortgages) were repossessed in Q4 2023. Although this is low and was a drop of 14% on the previous quarter, there may be dark clouds looming on the horizon as fixed-rate deals end for 1.5 million homeowners this year.
“In addition to the households already behind on payments, 356,000 mortgage borrowers could face payment difficulties by the end of June 2024. Amongst this group those rolling off a fixed rate deal could end up paying an additional £340 a month on average.“
Source: FCA
The FCA also found those aged between 18 to 34 and those living in London and the South East would struggle the most. Unsurprising, as this is where the most expensive properties in the UK are located, with the average price for a London property now being £505k.
You’ve Missed a Mortgage Payment, Now What?
If you’ve missed a mortgage payment, your credit score will drop and, after a grace period (determined by your lender), you’ll be charged a late fee.
Falling behind on your mortgage payments by 90 days means you have officially defaulted on the mortgage.
However, due to the Mortgage Charter which the UK government, the Financial Conduct Authority (FCA) and approximately 90% of UK mortgage lenders have agreed on, your lender can’t force you out of your home nor repossess it within 12 months of your first missed mortgage payment.
What Can You Do?
There are a myriad of reasons why you may get into mortgage difficulty such as losing your job or you become very ill.
So, what can you do if you are struggling or think you may miss a mortgage payment?
1. Use Savings
This is where your emergency fund comes in. Use this to help you pay your mortgage. However, at some point, the money will run out so you need to look at other strategies as well.
Once you’re back on your feet, replenish your emergency fund so you’re covered in the event of any other adverse event.
2. Reduce Expenses
Review where your money is going each month.
Telephone and Internet
Can you get a better deal on your mobile phone and broadband? Shop around to get a cheaper deal.
Utilities
Are you overpaying for electricity, gas and water? Again shop around, you may be able to get a better deal and reduce your monthly bills.
Also, simply using less will cut your bills.
Knock lights off when you leave the room, knock appliances off rather than leaving them on standby.
Ditch the half-hour showers and have a 3-minute cold shower in the morning. You’ll use less energy, and less water and potentially get lots of health benefits.
Unused Subscriptions
Are you wasting money paying for subscriptions you don’t use or expensive gym membership that you barely use? Cancel them, take the money and use it to pay your mortgage.
Eating Out At The Office
Are you eating out when you go to the office? Bring a packed lunch. It will save you hundreds each month.
For example, if you go to work and buy a cup of tea and a sandwich at Pret a Manger each day, you’d spend around £7.50. That adds up to £150 a month!
You can make a sandwich at home and bring a tea bag to work with you. A bag of 120 Tetley tea bags costs £2, that’s less than 2p per tea bag, much cheaper than spending 140 times that on a cup of tea!
Cut Your Shopping Bill
Here are 25 ways to cut your shopping bill leaving more money in your wallet to help pay your mortgage.
Travel
Can you car pool going to work? That will save you and your neighbours or colleagues money as well as helping the environment.
Is your work near enough that you can walk or cycle? Do this, it will save you lots of money and help you get fitter.
Do you have a car loan? If so, sell the car and buy an old cheap car for cash (if you really need a car for work).
3. Increase Your Income
Upskill and get a better job or go for a promotion in your current company. You should get an accompanying pay rise. You could also get a second job, even temporarily, to help you cover your mortgage payments.
4. Adult Kids Living at Home With You
If your kids are adults and living with you make sure they are paying their way and giving you money towards rent and utilities. If they’re not working then send them out to work and make them pay their way. You’re not carrying them.
5. Rent a Room Scheme
If you own your home, you can rent out a room or multiple rooms in your home under the government’s ‘Rent a Room Scheme’ where you can earn £7,500 per year tax-free.
However, if someone else is also renting out rooms in the same property, such as a joint owner, the amount is reduced to £3,750.
This extra money can help you pay your mortgage each month.
6. Rent out Your Garage or Parking Space
If you have a garage that you’re not using rent it out. If you have a parking space rent it out. There will be demand for it in particular if you live in a busy city like London.
7. Contact Your Mortgage Lender Early
If you have lost your job or you know you’re about to be made redundant or you have become very ill and can’t work, speak to your mortgage lender and let them know that you may get into difficulty paying the mortgage.
Your lender should offer you customised support to help you work out a strategy to keep your home and pay the mortgage each month.
Some of the options are listed below:
a) Extend Your Mortgage Term
You can extend your mortgage and switch back to your original term within the first six months if you choose to. This will give you breathing room.
You won’t need to do a new affordability check nor will it affect your credit score. Source: Gov.UK
For example, if you have a £300k 15-year mortgage at 6% you would pay £2,532 per month. If you extended that to 25 years, you would reduce your mortgage payment to £1,933 a month, that’s £599 less per month.
However, if you adopt this strategy, you may pay more interest on your mortgage over the long term.
b) Temporary payment deferral
You may be able to get a temporary payment deferral on your mortgage. The length of time needs to be discussed and agreed with your lender.
c) Part Interest-Part Repayment
You may be able to get your repayment mortgage changed to part interest-part repayment reducing your monthly mortgage payments.
d) Interest Only Mortgage Payments
You can switch to an interest-only mortgage for 6 months then switch back to a repayment mortgage without an affordability check and without it affecting your credit score.
Using the example above, if you have a £300k 15-year repayment mortgage at 6% you would pay £2,532 per month. If you changed this to an interest-only mortgage you would pay £1,501 a month, saving you £1,031 per month which you could use to pay your utility bills, food etc.
If you did this for 6 months it would take the pressure off while you get another job or a better job.
8. Mortgage Payment Protection Insurance
Check if you have this insurance as it may pay your mortgage if you’ve lost your job or become very ill.
9. Seek Free Advice from Debt Advisor Services
Some of the organisations which could help you include:
- National Debtline
- Citizens Advice
- Step Change
- Money Helper
- Shelter
10. Check UK Government Schemes That Can Help You
Some government schemes may help you with your mortgage payments such as:
Support for Mortgage Interest (SMI)
If it looks like you may miss a mortgage payment in the future, SMI may help you towards paying the interest on your mortgage. However, to be eligible, you need to be receiving a qualifying benefit such as universal credit.
SMI is paid to you as a loan. You will need to repay it with interest when you sell or transfer the ownership of your home unless you’re moving the loan to another property.
SMI cannot help you if you are already in mortgage arrears.
Summary
If you have missed a mortgage payment or are worried you might, there are actions you can take to help you get out of your situation.
Don’t panic as the mortgage lender can’t kick you out of your home for at least a year and by that stage, you should have called your lender and agreed on a plan of action, got a new job, better pay etc., repaid the outstanding amounts and got back on track with your mortgage payments.
Thanks for reading!
Have you had difficulties paying your mortgage or are you worried that you might in the near future? Share your experience and ask any questions in the Comments section below.
DISCLAIMER: Inquisitive Finance operates on principles of exchange of knowledge, ideas and opinions and learning in the community. Your decisions are entirely your own responsibility, and I am in no way responsible for your actions. I am not a financial advisor. Whilst I strive to provide accurate and up-to-date information, I make no warranties or representations as to the accuracy or completeness of this information. Use common sense, do due diligence and where necessary, use the services of a licensed financial advisor, before making any financial decision and/or transaction.
