With interest rates rising and mortgage products being withdrawn or re-priced, many homeowners will be worried about falling into mortgage arrears.
It’s not just mortgage rates that are going up – energy is the most expensive it has ever been – meaning many households are struggling to pay their bills.
If you have a variable rate mortgage, such as a tracker, your monthly payments will go up each time the Bank of England increases the base rate.
If you have a fixed rate mortgage, you won’t be immediately affected by rate rises. However, when your fixed rate ends, you’ll be automatically switched to your lender’s standard variable rate which is likely to be much higher. If you want to fix your mortgage again, you’ll most likely find the fixed rates on offer to be higher than previously.
It’s always worth speaking to a mortgage adviser, about locking in a new rate now before rates go up even more. Our advised mortgage advisers can help you with finding the right mortgage for you. Fill in the form below for a quick call-back.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Individual savings may vary, your savings will depend on personal circumstances.
You may have to pay an early repayment charge to your existing lender if you remortgage.
What are mortgage arrears?
If you fall behind on your mortgage payments, this is known as “being in mortgage arrears”.
Being in mortgage arrears is pretty serious. If you don’t make up the payments or come to an agreement with the mortgage lender then, ultimately, your property could be repossessed.
However, lenders only repossess properties as a last resort. Legally, they have to treat you fairly and consider any request you make to change the way you pay your mortgage.
Speak to your lender
If you’re in arrears or think you may struggle to make future mortgage payments, it’s important to contact your mortgage lender as soon as possible.
If you’re already in arrears, your mortgage lender will contact you. Make sure you respond to calls or letters as soon as possible.
In most cases the lender will be willing to come to an arrangement with you to pay off the arrears or stop you falling behind with payments. This might involve:
- switching to an interest-only mortgage
- extending the term of the mortgage
- accepting reduced payments for a period of time
Your property may be repossessed if you do not keep up repayments on your mortgage.
Are you claiming everything you’re entitled to?
If you’re worried about falling into mortgage arrears, being unemployed or on a low wage. Check if you are receiving all the benefits and tax credits you’re entitled to.
These can top up low incomes and can often make the difference between being able to pay your mortgage or not each month.
If you’re claiming certain benefits, you might be eligible for a Support for Mortgage Interest (SMI) loan from the government. This type of loan is designed to help pay the interest on your mortgage (not the capital). It will need to be repaid when you sell your house.
Should I take out mortgage payment protection insurance (MPPI)?
Mortgage payment protection insurance covers your mortgage payments if you’re made redundant or can’t work due to sickness or an accident.
But it won’t cover you if you fall into mortgage arrears due to the rising cost of living.
It might be worthwhile taking out MPPI if you wouldn’t be able to afford your mortgage. For example, if you lost your job or became sick and couldn’t work.
Should you fix your mortgage now?
Experts predict that we could see further rises in the base rate in 2023.
If you’re on a variable rate mortgage, switching to a fixed mortgage will stop you being impacted each time the base rate goes up.
But fixed rate mortgages have been increasing in price. According to a UK financial information company, the average two-year fixed mortgage is now more than 6% (October 2022). Two years ago the average two-year deal was about 2.35%. So, people coming off a two-year fix now will find they will have to pay a lot more for a new fixed rate.
Although fixed rates are currently expensive. They will mean you will know exactly how much your mortgage will cost for the next two or five years.
The number of fixed rate mortgages on the market has dropped sharply since Kwasi Kwarteng’s mini-budget in September. So, it’s much harder to find a competitive rate.
If your fixed rate is due to end in the next six months, talk to a mortgage broker. You can reserve most mortgage products up to six months in advance.
Your property may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Consider taking in a lodger
If you have a spare bedroom and don’t mind sharing your home, you could consider getting a lodger.
Under the Government’s Rent-A-Room scheme you can earn up to £7,500 in rent a year tax-free.
There are a shortage of rental properties at the moment so finding a lodger should be pretty easy.
Get professional debt help
If you’re struggling to make ends meet, or have debts you can’t pay. Seek advice from a charity such as StepChange or Citizens Advice.
Contact one of these bodies immediately if mortgage arrears mean you’ve been told by your lender that it’s applying to court, you’ve received court papers, or you’re expecting bailiffs. The right advice might stop your home being repossessed.
Last Updated: December 15th, 2022
