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Mortgage Arrears


Introduction

Mortgages and mortgage arrears are classed as a 'Priority Debt' and can lead to you losing your home.
It is very important that you try and sort out this problem as soon as possible by either contacting your lender or getting advice.
It's also important that you keep paying something on a regular basis even if you can't afford the full amount.

First and Second Mortgages

It is possible that you may have a first and second mortgage.
The first mortgage is the loan you take out to buy your home.
The second mortgage may be known as a 'Secured Loan' which is secured on your home. You should check your documents or get some advice if you are unsure about the content of your agreement.
Secured Loans are treated as a priority debt. The lender can go to court to repossess your home if you don't make the repayments.
If you have any worries or concerns, seek advice.

Will my Mortgage Company Agree to Accept my Offer of Payment?
You will need to provide the lender (mortgage company) a full list of your income and expenditure (on the Personal Budget Sheet ).
The income and expenditure details that you provide will give the lender an overview of your current financial position.
You should also let the 'lender' know if your circumstances have changed such as death of a partner, marriage breakdown, unemployment, reduction in wages or benefits, illness, birth of a child, etc.
The 'lender' will want you to offer an extra sum of payment towards the arrears in addition to the contractual monthly installment. Some lenders will request that the arrears be cleared over the next 12 to 24 months. If you cannot manage this ask for more time and start paying what you have offered.
Tell the 'lender' if your house is worth much more than the total mortgage as they may agree for you to repay the arrears over a longer period.
Lenders don't want people to lose their homes.


Ways of Helping You with Paying Your Mortgage

There are many ways in which you can get help to pay your mortgage.
This help can be from the mortgage lender, any insurance policies you may have and the Department for Work & Pensions (DWP)
Your mortgage lender may offer some type of 'Rescue Scheme' whereby they buy back your home or part of it. As a result of this you become a tenant or part tenant.
It is worth asking your mortgage lender if they operate this scheme, especially if you want to remain in the property and have very little or no money to offer.
It is also worth enquiring with Housing Associations to see if they run similar schemes.
Always check that you have claimed under any mortgage protection insurance you may have. If you do not understand your terms and conditions of insurance get some advice - You may be losing money by the day.
You may be able to claim extra benefits from the Department for Work & Pensions (DWP) to maximize your current income if it is considered to be low. These would include Working Tax Credit, Income Support top-up etc; or you may qualify for disability benefits based on personal circumstances for yourself, partner or children.
Contact the DWP or Welfare Rights for advice.
Taking in a 'lodger' or a 'tenant' may be a possible short/long term solution, however if you are claiming any state benefits then you would need to check how this may affect your entitlement to your existing benefit either by contacting the DWP or your local advice service.

Help with paying your mortgage if you get Income Support or Job Seekers Allowance

If you are in receipt of Income Support or Job Seekers Allowance, the Department for Work & Pensions (DWP) should pay some of the interest on the mortgage.
You will need to complete a Housing Costs form in order to qualify for some help.
It is possible that you may have already completed this form wen you initially claimed for Income Support or Job Seekers Allowance but do not receive any help as yet. The reason for this is that there is a qualifying period for assessing help. This depends on when you took out your mortgage.

Mortgages Taken Out Before 2nd October 1995

For the first 8 weeks - you will receive no help from when your claim for Income Support or Job Seekers Allowance is awarded.
From the 8th-25th week - you should receive half of your Mortgage Interest payment.
From the 26th week - you should receive the Full Mortgage Interest.

Mortgages Taken Out After 2nd October 1995

For the first 39 weeks - you will receive no help from the date when your claim for Income Support or Job Seekers Allowance is awarded.
From the 40th week - you should receive the Full Mortgage Interest.
Be aware that the interest paid by the DWP is at a set rate. This does not necessarily match the rate that you are being charged by the mortgage lender. You would have to make sure that you took this into account when calculating what you need to pay including any arrears.
Other Types of Help you can get from Your Mortgage Lender

Lenders will try and help you to sort out any problems you may have with paying your mortgage.

  • They may also offer to help you in other ways, but remember do not sign anything until you feel comfortable with any explanation offered or before you receive independent financial advice.
  • The lender may agree to add the arrears to your total mortgage debt - this option is usually considered when your property is valued more than the amount outstanding on the mortgage.
  • The possibility of changing from an endowment to a repayment mortgage may be an option. This could release money from the endowment policy towards your arrears. However, you may end up paying more than your usual monthly instalment. Remember you must get independent financial advice if you are considering cashing in any endowment policies you may have .
  • Your lender may agree to increase the mortgage term beyond the original terms, ie. an increase from 25-30 years. This will reduce the monthly payment in order for you to make an offer towards the arrears you have.
  • Your lender may consider the possibility of you paying the interest on a temporary basis. This is only appropriate if you have a 'capital repayment mortgage'.


What happens if I can't afford to pay the mortgage?

If you have considered and explored all of the options prior to this section your final option may be to consider handing back the keys to your mortgage lender or selling the property yourself.
Unfortunately, your instalments will not stop until the property is sold.
If you sell the property yourself it is more likely that you will get a better price than if the mortgage lender sold your home.
You may also be left with a shortfall in the mortgage after the property has been sold. This means that you could still owe the lender money.
You need to take this into consideration before handing back your keys.
It is possible that the local council or housing associations may consider that you have intentionally made yourself 'homeless'. This may cause difficulties if you are looking for the council to rehouse you.
If you are thinking about any of these options get advice before making any final decisions with your mortgage lender.

Court Action - What happens if my mortgage lender takes me to court?


  • Remember - you cannot be evicted from your home without a court order.
  • Even at this late stage your mortgage lender may be prepared to make an arrangement with you.
  • Any paperwork you receive from the mortgage lender or from court is important. Keep this in a safe place and seek advice as soon as possible.
  • You can have a representative at court.
  • It is essential that you attend court as well.
  • It is the decision of the Court whether they allow you to keep possession of your home. It is not the lenders decision.
  • The court will look at both points of view and normally set an 'order to pay' the monthly installment plus an affordable amount off the arrears.
  • It is important that you keep up to date with your court order payments as the mortgage lender can go back to court to request further action to be taken against you.
  • If your circumstances change and you are unable to keep up with the payment set by the courts, you can go back to court and apply for reconsideration by completing Form n244.


The Hearing


If the borrower doesn’t wish to fight the possession proceedings and is happy to move out they may not have to attend the hearing. An order for immediate possession will be granted and the court can set a date for when the property will have to be vacated.

If they wish to try and remain in the house or request time to find alternative accommodation, they must attend the hearing – Even if an arrangement has been made with the lender.

The court usually grants one of the following orders:

· An order for immediate possession
· An order for possession postponed or stayed (Usually if the borrower has asked for time to sell)
· A suspended possession order (You could remain in the house providing you keep up with the agreed instalments)
· An adjournment (usually when there are outstanding issues to resolve)

A court would usually agree or suggest an adjournment if:

  • There are outstanding matters that need to be finalised
  • For CCA regulated agreements, the defendant wishes to make a Time Order
  • Complex legal issue which needs further information/advice
  • The borrower has paid the arrears




Keeping your house


Most folks will be looking for a suspended possession order at the hearing. If an outright possession order has been made an application can be made to suspend it via the N244 form, there is a fee of £35 to do this (do not let the court fob you off with the £75 application notice fee!). Any application would need to have supporting evidence showing that the instalment + something towards the arrears can be met. If you ever breach a suspended possession order you could apply to re-suspend it although a judge may be reluctant to do this if the terms have been breached more than once.


Losing your house


Sometimes you may have to face up to the fact that keeping the house isn’t going to be possible. It is important to plan what you’ll do next. If you house has been repossessed you may be classed as being unintentionally homeless, this means you could be able to seek additional assistance from your local authority. If you wish to discuss homelessness and housing issues in more detail please consider calling Shelter on 0808 800 4444. Shelter: Home page

This post is only a very quick overview, if you would like to have some further advice please consider calling one of the debt help charities such as National Debtline or Consumer Credit Counselling service. You can also seek further advice from Shelter.