What happens if you can't pay your mortgage

If you’re struggling to pay your mortgage or if you’re worried about getting behind on your mortgage payments, the first thing to do is speak to your lender. Your lender will go through all the options available to you and will help you manage your mortgage payments.

Never miss a payment without first speaking to your lender. Missing mortgage payments will affect your credit score, but if you’ve informed your lender of upcoming payment issues beforehand, you’ll be given a broader range of solutions to get your finances back on track.

We’ve put together the common mortgage options offered by lenders and other steps you can take to avoid losing your home.

Change when you pay your mortgage

If it’s becoming tricky to pay your mortgage direct debit on a certain date and you want to move it, you can change this directly with your lender - often online. Bear in mind, direct debits may take at least two weeks to update, so your new payment date might start the following month and incur additional interest costs for doing so. Check with your lender when you can expect to see any changes.

Take a mortgage payment holiday

You might be able to take a break from paying your mortgage for a few months to help you get back on track with your finances. Not all lenders offer this option though, so speak to them as soon as you can. Bear in mind you’ll still be charged interest during this period, and any paused payments will have to be repaid before the end of your mortgage term.

Refinancing

If you want to change your mortgage term to fit your finances better, refinancing your mortgage could be the way to go. This involves replacing your original mortgage with a new one and follows a similar application process, i.e. lenders will look deeply into your financial background to check your eligibility, including your credit history and score.

It is important to shop around for the best deals when looking for a new mortgage. Always check to see if refinancing is worth it and whether you have any prepayment penalties on your current mortgage before you pay it off early.

Repayment plan

A mortgage repayment plan might be a good option if you’re going through a short period of financial difficulty and have missed your mortgage payments. This could be down to a job loss or being unable to work for medical reasons, etc. A repayment plan would add a portion of your missed payments to your bill for a set amount of months until you’re back on track. It’s important to note if you’re only just starting to struggle with your mortgage payments, it might be better to look into other options first, i.e. refinancing or a mortgage payment holiday, to avoid any missed payments affecting your credit score.

Lengthen the term of your mortgage

If you extend your mortgage term - for example, from 25 to 30 years - this’ll reduce your monthly bill by spreading your total debt over a longer period. You’ll end up paying a little more in interest overall, so try to return to your original mortgage length as soon as is financially viable.

Switching to interest-only repayments

If you switch from a repayment mortgage to an interest-only mortgage, you could significantly reduce your monthly mortgage bill. This is because you’ll be paying off the interest, rather than that and the capital together. It can be a good short-term solution to managing your monthly outgoings. Bear in mind: with an interest-only mortgage, you’ll still have the capital to pay back when the term ends. Ensure you can pay this amount or switch back to a repayment mortgage at a later date.

Switch to a cheaper mortgage

You might be able to reduce your monthly mortgage payments by switching to a cheaper mortgage deal with another (or the same) lender. Always check whether you’ll need to pay any penalties by switching lenders before your mortgage term ends. And remember, if you’re already behind on payments to your first lender, you’ll still need to pay these off.

If you have Mortgage Payment Protection Insurance (MPPI), this is the time to claim on it. Speak to your insurance provider as soon as you can to see if they’re able to cover your upcoming mortgage payments. The total amount will be outlined in your policy documents and typically will cover you for up to one or two years. Bear in mind, MPPI doesn’t usually cover unemployment, unless you can prove you’re actively looking for work. If you’re unable to pay your mortgage due to illness, you’ll most likely need to provide a doctor’s certificate.

If you’re already receiving benefits, such as income support, universal credit or pension credit, you might be eligible for Government help with paying your mortgage. Support for Mortgage Interest (SIM) is where the interest is paid on your behalf in the form of a loan, which you’ll need to pay back at some point.

You can check your eligibility on the Gov.UK website here. If you’re eligible, SMI could cover the interest on the first £200,000 of your outstanding mortgage. The interest rate for SIM is 2.09%, but this can change depending on whether the Bank of England raises or lowers rates.

The Breathing Space Scheme, otherwise known as the Debt Respite Scheme, can give people struggling with debt time to get advice and find appropriate debt solutions. The Government has set up two types: a standard breathing space scheme and a mental health crisis breathing space scheme.

• A standard breathing space scheme is available to anyone with problem debt and aims to give legal protections from creditor action for up to 60 days. This could include pausing enforcements and contacts from creditors, as well as freezing any interest and debt charges.
• A mental health crisis breathing space scheme is available to anyone receiving mental health crisis treatment. This involves some stronger protections and lasts as long as the client’s treatment, plus 30 days (no matter how long the crisis treatment lasts).

Check your eligibility for breathing space here.

Scottish residents could benefit from two extra schemes from the Scottish Government’s Home Owner’s Support Fund. The first is the Mortgage to Shared Equity scheme, where the Government buys a stake in your home so you can reduce your mortgage payments. The second is the Mortgage to Rent scheme, where a social landlord can purchase your property, and you’ll rent that property from them.

Mortgage rescue schemes: Important questions to ask

• Are independent benefit and debt advice provided?
• Who’ll pay for conveyancing costs if necessary?
• What type of tenancy is being offered? Will you be protected from eviction?
• What is the cost of rent and are there any rent increases?
• What are your tenancy responsibilities?
• What will your landlord be responsible for?
• Can you buy back your property when your finances improve?
• Will you have insurance cover if the mortgage rescue scheme suffers financial problems?

You can get in-depth advice about your missed mortgage payments, getting into arrears, dealing with your lender, and much more from several debt charities.

• Citizen’s Advice
• StepChange Debt Charity
• National Debtline
• Shelter

If you’ve already missed your mortgage payments, it’s incredibly important that you speak to your lender if you haven’t already done so. By pre-warning them that you’re going to go into arrears, they’re obliged to try to help by presenting you with a range of possible solutions. If you go into arrears without informing them, it can start the process towards repossession.

Sadly, yes. If you fall behind in your mortgage payments, it’ll show on your credit report for six years. So, it’s important to try to find a solution directly with your lender and understand what your options are.

Check your credit score and report with ClearScore.

Your mortgage lender won’t usually start repossession proceedings unless all attempts at finding a mutually beneficial solution have failed. That’s why it’s so important to speak to them immediately to discuss your options. If you keep up communications with your lender to actively negotiate a settlement or solution, they’re less likely to escalate repossession action against you.

If your lender has already started repossession proceedings, seek legal advice as soon as you can. The Housing Possession Court Duty Scheme can be accessed via your local council, and you can check to see if you can get any help with legal costs.

For further advice around court or legal issues, the debt agencies and charities listed above will be able to help.

1. Avoid taking on more debt

It might be tempting to take out additional loans to pay for your mortgage, but you could be making it worse for yourself in the long run. These loans can be very expensive and can be secured against your home.

1. Consider taking out mortgage payment protection insurance

If you want to protect your payments in the event of financial difficulty, there are many insurance products you can apply for to protect your mortgage, such as MPPI. Make sure to shop around and compare prices.

1. Budgeting

Take the time to create a budget to see if there’s any money you can put away into savings. A pot like this would be perfect to draw on if you ever find yourself struggling to pay certain bills. To help, we’ve put together an article on how to stick to a budget.