What happens if you can't make a mortgage payment?
Can’t Pay Your Mortgage? 7 Steps to Avoid Repossession & Regain Control
People get into difficulty with their mortgage payments more often than you might think. It’s the most significant amount of money you’ll likely borrow in one transaction. Which means it’s one of the most expensive repayments. With this also looms one of the most significant risks: losing your house.
If you’re in arrears, struggling to keep up with your mortgage payments, and afraid you could lose your home, don't be.
Repossessing your property is a last resort; the Financial Conduct Authority (FCA) has set rules and guidance to ensure this. However, it is essential to understand that mortgages are not like unsecured debts. An asset is attached to the debt, so there is a risk that the asset may be taken from you if your situation worsens.
We will now share seven actions to ensure you have the information you need to handle your mortgage arrears confidently and without fear.
Not in the mood to read? We got you covered. Listen to the rest with the YouTube link at the bottom of the page.
Step 1: Open Communication – Why Talking to Your Lender is Non-Negotiable
Proactive Communication Limits Legal Risks & Protects Your Home
No matter how worried or stressed you are, don’t bury your head in the sand and hope the mortgage lender will disappear. Keep communication open with your lender. It might feel tempting to hide the letters down the back of the sofa, but the best thing you can do is communicate with the lender, and always in writing. If you are proactively communicating with your lender, the immediate recovery actions they can take are limited.
How to Write to Your Lender (Template Included)
Communicate in writing to create a clear record of your efforts and agreements. (Find free template letters on our website to get you started.)
Step 2: Know Your Rights – What Lenders Must Do to Help
The FCA Rules Every Homeowner Should Memorise
If you’re genuinely unable to keep up with your monthly payments, the lender has a duty to work out a plan with you. This is why maintaining open lines of communication is so important. They need to collaborate with you to establish a timeframe in which you can settle any arrears.
What "Reasonable" Really Means for Repayment Plans
Let’s say your mortgage is £500 per month, and you’ve missed a month. The lender cannot expect a payment of £1,000 the following month to make up for the missed payment. That would be unreasonable unless you’ve told them you can afford both payments.
Instead, the lender must:
- Work with you to understand your financial situation before setting up a payment plan.
- Allow you a reasonable amount of time to consider any agreement before committing.
Key takeaway:
Your lender can’t just double your payments. They must listen, understand your situation, and give you time to make a decision.
Step 3: Extend Your Mortgage Term – Lower Payments, Faster Recovery
How Even 5 Extra Years Can Save Your Home
One of the first steps you should take is to consider extending your mortgage term to help you get back on track with your mortgage payments.
Let’s say you have 20 years left on your mortgage. By extending it to 25 years, the monthly payments should be lower, making them more affordable. If you're struggling to pay your mortgage, we expect your lender to discuss this option with you proactively. If not, make sure you ask them about it.
Case Study: Steven’s £200/Month Savings (Without Selling)
Steven was facing a difficult situation. With 20 years remaining on his mortgage, his monthly payments were straining his budget to the limit. Missing payments felt like a looming threat, and the fear of losing his home was a genuine concern.
But Steven didn’t panic. Instead, he took a practical step: he spoke with his lender about extending his mortgage term by five years. This straightforward move lowered his monthly payments by £200, providing him with the breathing room he desperately needed.
No selling, no drastic measures, just a simple adjustment that made a real difference.
Steven’s story is proof that sometimes, the best solution is the one that keeps you in control without turning your life upside down.
If you’re struggling with mortgage payments, remember Steven’s approach: communicate early, explore your options, and don’t be afraid to ask for terms that work for you.
Step 4: Switch to Interest-Only – Immediate Breathing Room
Temporary Fix or Long-Term Trap? What You Need to Know
Extending the terms isn’t the only option. If you’re currently on a repayment mortgage, the monthly cost will almost certainly be higher than an interest-only mortgage.
With an interest-only mortgage, you pay off the interest, not the money you originally borrowed. Discuss switching to a different mortgage type with your lender, as this could offer some immediate breathing room and make your mortgage more manageable.
Step 5: Deferred Interest – Short-Term Relief for Crisis Moments
When to Use This Option (and When to Avoid It)
Instead of switching to an interest-only mortgage, you could negotiate with the lender to “defer the interest”.
However, this is only a short-term fix to reduce your mortgage payments while you get back on your feet and work through your financial difficulties.
The Hidden Costs of Deferring Mortgage Interest
Just a heads up, deferred interest may result in higher payments. It’s wise to approach this option with a clear plan, ensuring you can smoothly get back on track!
Step 6: Government Support – The SMI Loan Lifeline
Eligibility Check: Could the State Cover Your Mortgage Interest?
Outside of the options a lender has within their power, there is a government scheme designed to help you and the lender. It’s called ‘Support for Mortgage Interest’, also known as SMI.
The government helps with the interest payments through this scheme, but only when you are really struggling. It’s one of the final steps to prevent you from losing your home, and it isn’t a handout but rather a loan on which you will be charged interest. The loan is then paid back at the point you sell your property.
Repaying SMI – What Happens When You Sell Your Home?
The scheme is for when you have no other options. To learn more about the scheme's eligibility, visit https://www.gov.uk/support-for-mortgage-interest/eligibility.
Step 7: Selling Your Home – How to Stay in Control
Avoid Lender Fire Sales: Set a Realistic Price
The lender must provide you with a reasonable amount of time to attempt to sell the property. You’ll need to notify the lender that you’re putting the property up for sale and that a realistic price has been established.
Try to sell the property yourself in the traditional manner. Avoid relying on a lender, as they will seek a quick sale.
Shortfall Debt? Your Rights If the Sale Doesn’t Clear the Mortgage
In the best-case scenario, the sale will clear your mortgage. However, in the worst-case scenario, the sale won’t clear your mortgage, leaving you with a remaining mortgage debt and no asset. This is called a shortfall.
That's a lot of info...
There’s a lot of information to take in here, and this is just the simplified version. We want you to feel confident with actionable options that you can pursue if you are struggling with mortgage arrears. We don’t want to bombard you with technical information.
That said, here is a link to the FCA rules and guidance. We try to keep the information we provide as simple as possible, but we always encourage you to do further research before you take action.
It is essential to communicate with your lender, retain control and remain calm
Don't forget to read The Real Debt Guy's final thoughts below!
The Real Debt Guy is a qualified financial adviser and a UK debt expert. The information in this article is considered to be true and correct at the publication date.
