When faced with mortgage arrears, it is understandable if you want to do your best ostrich impression and stick your head into the sand.
The danger of home repossession and eviction is scary and can sometimes cause people to panic and stay silent.
This is generally a very bad idea, however. By talking to your lender and seeking out outside help you can have the best possible chance of saving your home.
In this article, we look at what you need to say to a mortgage lender when facing arrears, how you can prepare for that meeting, and what help may be available to you.
01 | When to contact your lender
The best possible time to contact your lender about arrears is before they happen. If you can foresee financial rough waters coming, it can be an extremely good decision to warn your bank before they hit.
When banks know about issues in advance, they can be surprisingly helpful. They may offer things like changing the term duration of your loan, letting you switch to an interest-only product, or even potentially a mortgage holiday. This is where your required monthly payments are temporarily reduced, (potentially as low as zero) for a period.
If you did not manage to contact your mortgage lender before developing payment arrears, you should try to get through to them before they issue a formal Default Notice. Generally, lenders offer a grace period of 5-20 days between any non-payment, or default, and their issuing of a default notice.
If you receive a default notice, you can face severe consequences. The immediate issues include late fees, the build-up of interest and perhaps most importantly, damage to your credit rating. And in the long term, it could be the first step towards home repossession.
Nonetheless, lenders can still be flexible following a default notice, and are almost always willing to negotiate at, and after, this point. Often, court possession hearings end with a negotiated suspended possession order, which allows you to keep your home in exchange for sticking to a set of agreed terms.
It can even be worth negotiating with a lender right up until an eviction date. Generally, mortgage lenders prefer not to conduct evictions, and if they have any reasonable expectation of getting their money back another way, they will accept it.
In addition, it is possible for your circumstances or your lender’s best offer to change, and you may suddenly find yourself capable of meeting their requirements.
02 | Who should you speak with before meeting your mortgage lender?
Navigating mortgage arrears is a complicated process that often requires using multiple skill sets.
Before engaging with your mortgage lender, it is prudent to seek advice from professionals who can provide insight into the legal and financial aspects of your situation.
We now delve into why and when you might need to consult with legal and financial experts, how they can assist you, and where to find their services on a tight budget.
Legal advisers:
- Why and when: Legal advice is crucial at all stages of the arrears process to understand the legal framework surrounding mortgage arrears and repossession in the UK. Before you miss a payment, a legal adviser can help clarify your rights and obligations under your mortgage agreement. After missing a payment, they can guide you on the legal implications and proactive steps to take. Facing a warrant of possession or eviction, they can advise on legal procedures and defences.
- How they can help: Legal advisers provide clarity on mortgage terms, explain legal protections, and advise on how to communicate effectively with your lender to negotiate favourable terms.
- Where to Find Them: Local legal aid services, the LawWorks charity, university law clinics and community legal clinics can provide free or low-cost legal advice.
Financial advisers or debt counsellors:
- Why and when: Financial advisers become crucial when foreseeing financial difficulties, immediately after missing a payment or if you experience a significant change in financial circumstances like a job loss, which could lead to or exacerbate mortgage arrears.
- How they can help: They can assist in evaluating your financial situation, devising a feasible Repayment Plan, and advising on how to present this plan to your lender. They can also assist in negotiating with other creditors to reduce monthly payments through a detailed debt management plan freeing up funds to cover mortgage payments and help you understand the implications of different repayment strategies.
- Where to find them: The MoneyHelper, National Debtline, and StepChange Debt Charities offer free financial advice and resources on managing mortgage arrears. Some local debt charities and community centres also provide free or low-cost financial counselling. Recommendations from friends, family, and online may also help you find reliable financial advisers or debt counsellors.
Mortgage Brokers:
- Why and when: If you are considering refinancing as an option to manage your mortgage arrears, consulting with a mortgage broker before talking to your lender can be beneficial, especially if your credit situation has improved since taking out your original mortgage.
- How they can help: Mortgage brokers can explore refinancing options, compare mortgage offers, and advise on whether refinancing is a viable solution for your situation. They can also help in understanding the cost implications of refinancing, including any penalties for exiting your current mortgage and the costs associated with the new mortgage.
- Where to find them: Online platforms often have directories of mortgage brokers. Some recommended platforms to find mortgage brokers include:
Additionally, local estate agents can often also provide referrals to reputable mortgage brokers.
03 | What do you need to do to prepare for contacting your lender?
When facing arrears, talking with your mortgage lender is a crucial step towards finding a way to stop repossession of your home.
Preparation is key to making the discussion productive and moving closer to a solution that works for both parties.
Here we look at the essential steps you need to take in preparation for the initial discussion, from gathering necessary documents to formulating a realistic repayment proposal.
1. Understanding your financial situation:
- Prior to the discussion, it is vital to have a clear understanding of your financial situation
- Evaluate your income, expenses, debts, and assets
- Create a budget to understand how much you can realistically afford to pay towards your mortgage each month
2. Gather necessary documentation:
- Your lender will require evidence of your financial situation
- Gather recent payslips, bank statements, tax returns, and a list of your debts and monthly expenses
3. Research your lender’s policies:
- Understanding your lender’s policies on mortgage arrears and their process for handling such situations can help set expectations for your discussion
- Legal advisers can help interpret any legal terminology in your lender’s policies and explain your rights and obligations
4. Prepare a repayment proposal:
- Based on your understanding of your financial situation, prepare a proposal for a new repayment plan
- Financial advisers can assist in devising a feasible repayment plan that aligns with your budget and lender’s requirements
- Be ready to discuss why this plan is realistic and how you intend to stick to it
5. Practice communication:
- Practice explaining your situation clearly and concisely
- Being able to communicate effectively can help build trust and understanding with your lender
6. Know your rights:
- Familiarise yourself with your legal rights regarding mortgage arrears and repossession
- Legal advisers can provide insight into your rights and the legal implications of different repayment strategies
7. Plan to follow up:
- Be prepared to provide additional information if requested by your mortgage lender
- Financial advisers can help prepare a follow-up communication plan to keep your lender updated on any changes in your financial situation
- Have a plan for staying in regular communication with your lender and updating them on any changes in your financial situation
Thorough preparation, encompassing a clear understanding of your financial situation, a well-thought-out repayment proposal, and effective communication, can significantly enhance your probability of reaching a favourable resolution with your mortgage lender.
By employing the expertise of legal and financial advisers in your preparation, you are positioning yourself for a more productive discussion and a better outcome in managing your mortgage arrears.
04 | What do you say to your mortgage lender when facing arrears?
After you have completed your preparations and sought professional financial and legal advice, it is time to talk with your lender.
Finding your lender’s contact details is the first step. These details should be available on your mortgage statements, within your mortgage agreement, or on their official website. You can contact them via phone, email, or, if you have online access to your online mortgage account through a designated online portal.
Be sure to document all communications with your lender for future reference, as this can be crucial for keeping track of the discussions and any agreements made. As you communicate with your lender, it is essential to be clear, honest, and concise about your financial situation. Maintain a calm and respectful demeanour, regardless of how stressful the situation may be.
Prepare to answer questions about your finances and be ready to provide supporting documentation as required. When it is time to present a repayment proposal, refer to the repayment plan you developed in preparation for the discussion. Explain how you arrived at this proposal, showing an understanding of your financial situation and a commitment to resolving your payment arrears.
Detail the steps you plan to take to ensure you can adhere to this new repayment schedule. It is best to have your financial adviser review your repayment proposal to ensure it is realistic and meets your lender’s criteria. If you have engaged a legal adviser, have them review any legal documents or correspondence from your lender to ensure you fully understand the terms and any legal implications.
Following the meeting, it is good practice to send a thank you email reiterating the key points discussed and the agreed-upon next steps. Keep your lender informed of any changes in your financial situation that may affect your repayment plan. Document all communications and keep a timeline of events for reference. This can be helpful in tracking the progress of your repayment plan and any further negotiations.
05 | What are the possible outcomes of negotiating mortgage arrears?
When you are facing mortgage arrears, talking to your lender is a critical step towards finding a solution. The results of these talks can vary widely and can range from the lender taking you to court to the lender offering you a break from payments, known as a mortgage holiday.
We now explore the various outcomes, how likely they are, and under what conditions a lender might agree to them.
No assistance and legal action: Sometimes, if a lender sees long-term non-payment or does not hear from you, they might decide to take legal action. This is usually the last option for lenders when other ways to recover the money have failed. By staying in contact with your lender and actively working towards a repayment solution, you can significantly reduce the chance of this happening.
Reduced or waived late fee charges: If you miss a mortgage payment, it is standard practice for lenders to charge late fees. These fees can add up over time and make your financial situation worse. However, if you talk to your lender and show that you are willing to work on repaying your arrears, they may be willing to reduce or waive late fees.
Organising a repayment plan: A common way to address mortgage arrears is to negotiate a new repayment plan with your lender. Lenders are often open to discussion if there is a genuine change in your financial situation. The success of negotiating a new plan largely depends on how realistic your proposal is and whether you have a clear plan to catch up on the missed payments.
Mortgage refinancing: Refinancing your mortgage could be another option, especially if your financial situation has improved since you took out the original mortgage. The likelihood of refinancing successfully depends on your current financial status, credit rating and the market conditions when you attempt it.
Mortgage holiday: A mortgage holiday is a short break from mortgage payments which lenders might offer if you are facing temporary financial problems. Whether you can get a mortgage holiday largely depends on your lender’s rules, your payment history, and the greater national economic situation.
Extension of mortgage Term: Another possibility is to extend the term of your mortgage, which would reduce your monthly payments. Whether a lender agrees to extend the term may depend on factors like your age, the remaining mortgage balance, and the lender’s rules.
In Summary
Talking to your mortgage lender is a vital course of action if you have or are likely to have mortgage arrears going forward.
By communicating with your bank early and honestly, and keeping them in the loop, you can give yourself the best possible chance of receiving helpful assistance from them. This can include things like reduced or waived late fees, and options to restructure your mortgage to make this more manageable.
Even if you initially bury your head in the sand, speaking to your lender is worthwhile at any point in the arrears process, as with the proper financial and legal advice, you may be able to negotiate a solution which works for both the bank and you.
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