Rising mortgage payments are putting many people’s finances under increasing pressure, and some homeowners may be worried about losing their homes if they simply can’t afford steeper costs.
Mortgage rates have been creeping upwards again in the past month, following April’s inflation numbers, which showed that it isn’t slowing as quickly as hoped. This means that further interest rate rises are likely, as this makes the cost of borrowing more expensive which in turn dampens consumer spending. The average rate on a two-year fixed rate mortgage is now 6.01%, while the average rate on a five-year fix is 5.67%, according to Moneyfactscompare.co.uk. Read more in our article Interest rates jump to 5%: how to manage rising costs.
Following the latest interest rate hike, the government announced a series of measures aimed at helping struggling homeowners, including a 12-month waiting period before starting the repossessions process, and being able to discuss options with your lender without this impacting on your credit score.
When other essential costs are also rocketing, it may be a huge struggle to also meet rising mortgage repayments. If you fall behind and miss mortgage payments, you risk losing your home. But don’t panic, as there could be ways to ease the burden of mortgage rate hikes on your finances to avoid putting your home at risk.
Here, we run through some of the options you might be able to explore if you can’t afford your mortgage payments, and what steps lenders must take before they can repossess your home.
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
How to manage rising mortgage costs
If you’re worried that rising mortgage rates will mean you won’t be able to afford to pay your mortgage, and could ultimately lose your home, don’t bury your head in the sand. The first thing you need to do is contact your lender, ideally before you miss a payment. Once you start missing payments, this kicks off the mortgage arrears process, which could potentially lead to losing your home in the worst case scenario (read more about the repossession process below). If you’re worried about how you’ll pay your mortgage, read our guide What can you do if you can’t pay your mortgage?
Your lender should make every effort to help you to afford your repayments, and may offer options such as:
Extending your mortgage term: You could ask to reduce your repayments by extending your mortgage term from 10 to 15 years, for example. This could significantly reduce your monthly repayments (although you’ll pay more interest over the long-term), and you could reduce your term in the future if these become more affordable.
Switching to an interest-only mortgage: By moving from a repayment to interest-only mortgage, you’ll only pay the interest on your outstanding mortgage balance. However, some lenders only allow for those with a loan-to-value of 50% or 60%, or who are on high salaries, to switch to interest-only. Also, remember that this means you’ll still owe the capital sum at the end of your mortgage term. Read our article How do I pay off my interest-only mortgage?
The government has announced that those who switch to interest-only from repayment can also reverse this decision within six months without this impacting on their credit score.
A mortgage payment holiday: Some lenders may enable you to do this if, for example, you can’t afford payments because your income has dropped for a period of time. During the pandemic, the government backed a scheme that enabled homeowners to pause their mortgage payments for the maximum of six months. This has now ended, but some lenders continue to offer mortgage payments holidays. They may, alternatively, allow you to temporarily reduce your mortgage payments to give you time to get back on track.
Your lender should suggest which options may be available and most suitable for you. Whether you can use any of them will depend on your particular lender, your specific situation, and payment history.
Can you remortgage to reduce repayments?
Borrowers sitting on their lender’s standard variable rate (SVR), for example, may be able to reduce their repayments by moving to a better deal. Bear in mind that you’ll usually be moved onto your lender’s SVR when your current deal ends, and this rate is usually much higher than others on the market. You can start the remortgage process several months before your current deal ends.
Teddy Cenaj, mortgages expert at Habito, said: “The best time to look at starting your remortgage is six months before your fixed rate comes to an end, the reason being that you can get the application started and have your offer in nice and early so you don’t have to worry or rush to get things sorted.”
Don’t accept the first deal offered by your lender, as you should always make sure to compare deals across the market for the cheapest rate you can get. A mortgage broker can help you find the best deals based on your individual circumstances.
Remortgaging to a fixed-rate deal could provide some peace of mind that your mortgage payments will remain the same whatever happens to interest rates. Read more in our articles Five good reasons to remortgage right now and Four things to consider when remortgaging.
You may still be able to secure a mortgage if you have less free cash available each month due to higher outgoings, although this could limit the amount you are able to borrow. If your income has fallen, then the amount a lender will be willing to lend you will also fall. So depending on how much you want to borrow, you may find it more difficult to remortgage to a new deal unless you can provide evidence that any drop in your earnings is only temporary.
When will a lender start the repossession process?
Lenders should do everything they can (such as offering options to reduce your repayments as explained above) to avoid repossessions. As mentioned, the government has announced that mortgage lenders must introduce a 12-month waiting limit before they start repossessions.
Most borrowers would have been stress-tested when applying for a mortgage to ensure that repayments would be affordable if interest rates rose significantly. Lenders usually work this out by using their SVR or tracker rate that borrowers would move on to, adding three percentage points. However, of course, this doesn’t allow for borrowers whose circumstances have changed since they took out the loan, or may be finding it difficult to manage steep rises in essential costs.
If your lender has taken steps to help you with your mortgage payments, and you remain in arrears, it may eventually start court proceedings to ultimately repossess your home. But as stated, this should be a last resort. Before your lender can take you to court, they must have completed several steps, including clarifying how much you owe, offering alternative ways to pay, and providing information on how you can get debt advice.
What you can do
If your lender has started legal action to repossess your home, you can seek help from a debt charity such as Citizens Advice Bureau (0800 144 8849 in England, or 0800 702 2020 in Wales). You should attempt to come to an agreement with your lender to prevent the case going to court.
Remember that even if you’ve gone through the court process and face eviction, you may still be able to find a way to stay in your home if you seek help and can find a way to manage payments with your lender. Ultimately, whatever situation you’re in, it’s important to get whatever help you can to find out what your options are.
Here are some other charities and organisations that may be able to help and offer free guidance:
Shelter – 0344 515 2000
StepChange – 0800 138 1111
National Debtline – 0808 808 4000
PayPlan – 0800 280 2816
If you’ve already made an arrangement with your lender to pay back the arrears you owe and this has failed, your lender may still agree to set up another arrangement to prevent you losing your home. If possible, try to keep up with these payments as this could work in your favour if you do end up going to court.
Going to court
Your case will go to court unless you’ve opted for what’s known as ‘voluntary repossession’, which means you hand your home back to the lender yourself. But this should be avoided if at all possible, and you should make sure to get whatever help or advice you can to prevent losing your home. If you are going to court, you should receive letters and forms from the court, detailing your case, which you can present to a legal professional if possible.
If you’re notified that the case is proceeding to court, you should attend what’s known as the ‘possession hearing’. It’s at this stage that the court may decide that you could lose your home, particularly if you fail to attend without providing a very good reason, such as serious illness. If you don’t have a solicitor with you at this stage, seek help from a county court duty scheme.
Seeking legal advice
You can seek advice on how to find professional help through the charities above, and you may find that you qualify for legal aid if you’re on a low income and need to see a solicitor.
You can represent yourself, seek support from an advisor to the court or particular charity, or be represented by a solicitor. If you’ve got a complicated case or you don’t agree with your lender about how much you owe, for example, it’s important to seek professional advice. A solicitor will attend the court hearing with you and work to resolve your case.
What happens after you’ve gone to court
The court could make one of a number of decisions following the possession hearing. It’s possible that the court will dismiss the lender’s case, in which case you can remain in your home. This may happen if, for example, you’ve proved that you can afford to pay off any arrears and repay your mortgage by the end of the term.
However, the court may put in place an ‘outright possession order’, passing your home to the lender and stating that you must leave the property, usually within a few weeks of the hearing. Alternatively, a ‘suspended order’ means that you can remain in your home for a certain amount of time (up to six weeks in some cases).
If the court rules in the lender’s favour, and your lender serves you with a notice to repossess your home, they must then notify the local council that they’re taking this action. Your local council should then get in contact with you to offer support and advice. You may find that there is alternative accommodation for you if you’re unable to provide this for yourself. Get in touch with your local council’s housing department if you don’t hear anything from them at this stage, or beforehand if you’re worried and want to explore your potential options. Find contact details for your local council at Gov.uk.
If the court orders you to leave your home, and gives your lender the right to seize possession, and the date you are legally allowed to remain in the property has passed, then bailiffs can be used to evict you. In this scenario, you should receive a notice to say that your lender has applied for an eviction warrant from the court. Once you’re evicted (usually around 14 days after the warrant is received), the lender can take steps to sell the property, and recoup money owed to them.
Don’t suffer in silence
Money worries can be extremely traumatic, especially if you fear losing the roof over your head, but it’s vital not to keep it to yourself. There are lots of organisations out there which can offer support if you feel like you’re struggling to cope, so please talk to someone if your mental health is suffering. Find out where to go for help in our guide Are money worries affecting your mental health?
If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
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