It’s not the bricks & mortar, but the mortgage that keeps the roof above most homeowners’ heads. Economic realities mean fears of being unable to keep up with the payments, and ultimately repossession, loom large.
This is a mortgage arrears help Q&A guide on how to protect your home loan if you’re struggling to meet the repayments. It includes the three big state provisions; the Homeowner Mortgage Support Scheme, Mortgage Rescue, Support for Mortgage Interest and info on how to fight repossession.
A. Mortgage Payment Protection Insurance (MPPI) promises to make mortgage repayments for you during a period where accident, sickness or unemployment means your income is hit.
There’s no legal requirement to have it, but mortgage lenders often use the hard sell: throwing “peace of mind” and “lose your home” in the same sentence makes for a great sales pitch (if you may’ve been missold, see the PPI reclaiming guide).
Yet the fact it’s very profitable for lenders doesn’t automatically make it a bad product; MPPI's a good idea for many people. Yet DON’T automatically buy from your lender, as similar levels of cover can often be obtained for less than half the price through a standalone specialist insurer.
Mortgage Payment Protection Insurance (MPPI)
It’s worth noting, if you already have a foreseeability of redundancy (e.g. your company’s emailed all staff to say some will need to go) or are already in arrears with your mortgage, it’s unlikely you’ll be able to get MPPI.
Is MPPI worth it now Govt. help’s available?
The support available from the State has been strengthened substantially in recent times, and some people are eschewing protection, seeing it as unnecessary. However, if you can afford a decent protection policy, it'll almost certainly give more cover than any benefit scheme.
Benefit schemes are primarily designed to cushion the impact of recession. At most pay the interest on your mortgage or delay your repayments; they don’t actually mean it's being repaid as normal, whereas MPPI does.
Nonetheless, if you're considering an MPPI policy, it's worth checking out exactly what you’re entitled to first, and possibly tailoring the cover accordingly.
A. If you have an MPPI policy, you will be expected to claim from it before seeking government help, and since the latter only covers the interest, you’re better off using MPPI anyway.
What’s available depends on your level of vulnerability - is repossession imminent, or are you simply struggling a bit? There are three main forms of mortgage help, yet you can only use one, so it’s worth checking what you’d qualify for and which is best for you; use the Eligibility Checker just below.
If you’ve just been made redundant, it's important you sign-on first and know what benefits you’re entitled to, because it speeds up getting the government help (also see the Five Minute Benefits Check-up guide).
Do you have a real, imminent risk of repossession?
. Do you have savings of more than £16,000? 
. Do you receive benefits? 
. Is your mortgage under £400,000? A. No scheme will repay the whole mortgage, but Support for Mortgage Interest, as the name suggests, can pay the mortgage interest for you. You’ll have to find the rest of the money yourself (see the Money Makeover guide), or temporarily see if you can switch to an interest-only mortgage (see the Remortgage guide for details).
Here, the government steps in and makes the interest payments on the first £200,000 of your outstanding mortgage for the time you can’t afford them.
Yet the level of interest is set by the government; your specific rate isn’t used. Currently, this is pegged at a fairly high 6.08% until 31 December 2009, which means those on substantially lower rates could find enough coming in to cover a chunk of their repayments too.
Who’s eligible?
The main criteria is that you’re in receipt of one of the following state benefits: Income Support, Income Based Job Seekers Allowance (i-JSA), Employment & Support Allowance or Pension Credit. Therefore if you’ve recently lost your job or had an income cut, it’s important you sign on. See the the full Redundacy Guide for other hints and tips if you have lost your job.
The benefit kicks in 13 weeks after the person (or couple) responsible for paying the mortgage claims the initial benefit. You can only claim it for up to two years, unless your claim started before 5 January 2009 in which case there’s no limit.
Your eligibility for the scheme will automatically be assessed when you apply for an income-related benefit. It's up and running in England, Wales and Scotland, with a similar system in Northern Ireland.
Who isn't?
You can’t claim if you’ve over £16,000 in savings, and the property claimed for must be your only home.
If the benefit you're claiming is Pension Credit, then the amount of mortgage that you can claim interest payments for is capped at £100,000, not £200k. However, in this instance, you don't have to wait the initial 13 weeks before claiming SMI either.
What if I am already claiming SMI?
Support for Mortgage Interest underwent significant changes in early 2009. The size of mortgage you could claim for was boosted from £100,000 to £200,000, and the waiting time for new claimants was cut from 39 weeks to 13 weeks.
If you were already in the waiting period to claim SMI on 5 January 2009, then you will not have to wait the full 39 weeks to get this benefit, it will either kick in immediately (if you've already waited over 13 weeks), or as soon as you hit the 13 week mark. You will also be eligible for coverage up to the full amount of £200,000.
However, if you were already in receipt of SMI before 5 January 2009, sadly your payments WON'T increase above the old £100,000 threshold, nor will you get any benefit backdated (to make up for the extra weeks you waited to claim it).
Support for Mortgage Interest
A. The Homeowner Mortgage Support Scheme means if you switch to an interest only mortgage you can defer repayment of the majority of this interest for up to two years.
This was launched as a major policy initiative by the PM Gordon Brown in Dec. 2008, and launched to borrowers in April 2009. It currently has the support of RBS (including Natwest and Ulster Bank), Lloyds Banking Group (including Halifax and Bank of Scotland), Northern Rock, Bradford & Bingley, National Australia Bank (Clydesdale and Yorkshire Banks) and Cumberland BS.
A few other lenders have also confirmed they will offer borrowers the opportunity to use the scheme as soon as possible: Bank of Ireland (inc. Bristol and West), GMAC, GE Money, Kensington Mortgages, the Post Office and Standard Life Bank.
If you've a mortgage with an institution that's signed up, provided you're not eligible for the Support for Mortgage Interest benefit, you can apply to defer UP TO 70% of your monthly interest payments. Yet it’s crucial to understand exactly what this scheme will do...
It’s about deferral, none of the mortgage will be paid. You’ll need to pay it at a later date.
How does it work?
The interest payments you don't cover are added up and tacked onto the outstanding mortgage, for you to pay back when you can afford it, meaning there’ll be MORE to pay later. It’s also possible the mortgage term will be extended to help, so the total amount of interest repaid over the mortgage life will increase.
Yet the aim of this scheme is to prevent repossession and put you in a holding pattern until you’re back in work or your income’s increased, so you’re able to start repaying yourself. Put plainly, if it works, it’s a paltry cost to keep things going, and if it doesn’t, at least it’s kept a roof over your head for a couple more years. It can also be used on other secured debt, provided you pay a minimum of 30% of ALL the monthly interest.
The government has set a maximum interest rate it will cover of 8%; if yours is higher, only interest up to that level will be deferred (though this is linked to base rate changes). However, lenders are also obliged to not hike your rate for the duration of the scheme (except in line with base rates too).
To apply for help through this scheme, contact your lender, or a free debt help agency (read Problem Debts guide).
Who’s eligible?
This is aimed at those with mortgages of under £400,000, who’ve experienced either a drop in income or a hike in mortgage costs. You must have switched to an interest only mortgage with your lender, and be able to pay at least 30% of the monthly interest repayments.
To be eligible, the property must have been purchased and mortgaged before 1 Dec 2008 (though it's not a problem if you remortgaged to a new deal), and you have to have received advice from an accredited debt help advisor (read Debt Problems guide)
You need to have been making regular payments to your lender for five months running, but these needn't be for the full amount (though you must be repaying at least 30%). Some lenders begin repossesion proceedings after three months of arrears, but the government say "lenders will consider extending forbearance for 5 months to enable borrowers to access the HMS scheme."
Do explore all other avenues of making your normal monthly payments prior to taking up this support. If you have a £100,000 mortgage at 6% interest, deferring 2 years worth of interest and paying it off over 20 years will cost around £9,000 over the life of the loan.
It’s also worth noting as this is a scheme run through the banks, it’s likely the deferral of interest will be recorded on your credit files and could have a substantial hit on your credit rating. To see whether you qualify for this help, read the eligibility criteria.
Homeowner Mortgage Support
A. The Mortgage Rescue scheme is aimed at families whose annual income is under £60,000, have ‘priority needs’ (this means someone pregnant, elderly, disabled or with young children must live there) and are in danger of losing their home. If this doesn’t apply to you, skip to the What if no help's available? section.
These circumstances would usually lead to rehousing by the local council, but this scheme intends to keep occupiers in their current homes if possible.
If you qualify, the government enlists a ‘Registered Social Landlord’ to buy either part or all of your home at an independently assessed price, in order to decrease your monthly payments. There are two options…
Shared Equity
The Landlord provides a loan to pay off some of the mortgage, or other secured loans, via money given to it as a government grant. You then owe the Landlord for a portion of your home, but it is able to be more lenient with repayments.
This is intended for homeowners who have experienced ‘payment shocks’ (government-speak for harshly increasing mortgage & living costs), but can still afford to pay something each month. You’ll also need some equity in your home to be eligible.
Government Mortgage to Rent
In this instance, the Registered Landlord pays off the entire debt to the lender, then rents the property back to you, at an affordable rate. In other words you would no longer own the house.
This is clearly an extreme solution, and is targeted at those with unstable incomes or negative equity who are unlikely to sustain a mortgage in the future.
To see whether you qualify for this help, read the eligibility criteria. To apply, approach the local council yourself or be referred by a debt help agency (see problem debt help for lists).
This is an English scheme, though Scotland and Wales already have very similar initiatives in place, and Northern Ireland is currently holding a consultation on setting up a scheme like it.
Mortgage Rescue Scheme
A. If you’re struggling to meet repayments, don’t have an MPPI policy or savings, and aren’t eligible for any state help, then you need to be aware of your repossession rights. Of course, before that, do look at the bigger picture of your finances to see whether you can free up other cash (see how do I avoid falling behind?).
What is repossession?
A mortgage is a loan secured on your home. That means if you can’t repay, the lender has a right to take your home instead. Repossession is when it puts this right into practice, by going to court, and taking the house.
Most lenders don’t want to repossess, they’d prefer you to repay, so you do have some freedom here. However, if it looks inevitable that you can’t afford it, or it needs money quick, it will try to take your home swiftly. Then it’ll often do a fire-sale to recoup the debt. Sadly, even that isn’t necessarily the end of it; if the sale doesn’t cover what you owe, it can still chase you for the cash.
For this reason, if in the long run repossession is inevitable...
Consider trying to sell the home yourself, you’ll probably get a higher price.
This way if you are going to lose your home, you’ll be in control of it, may be able to hold off for a better deal, and may come out the other end with some cash.
Repossession-proofing steps
Lenders are required to use repossession only as a final resort, and there is an agreement that the major lenders won’t commence repossession proceedings until at least three months of arrears have occurred, and refer you to independent debt advice.
A bright spot is that a few banks - RBS, Natwest, Northern Rock and Bradford & Bingley - have said they will wait until borrowers are in six months of arrears, giving you a bit more time to sort out an alternative…
Speak to your lender.
Crucially, banks shouldn’t start repossession proceedings while a settlement is being actively negotiated. The key word here is “actively”. If your bank is writing to you, and you are hiding the letters under the doormat, it can argue that no negotiations are taking place and commence repossession.
Don’t miss repayments without talking to the lender first. It has far less impact if you’ve agreed a missed repayment or communicated that it's happening. Missing a repayment without informing your lender triggers the “arrears” issue immediately and starts the clock towards repossession.Discuss with it alternative options which will lower the amount of money you need to pay it each month. These include...
Seek debt help
If you are struggling, the first thing to do is take a look at all your debts together, and try to manage and prioritise them. See the full step-by-step Problem Debt checklist to guide you through this.
If you have problems with your lender, then using one of the non profit debt counselling agencies also adds real weight; and if it ever got to court, then it is very helpful in proving you’ve been ‘actively’ trying to sort it out, which could prevent a court from issuing a repossession.The main agencies are...
Consumer Credit Counselling Service: Full debt help service. Link: CCCS or call 0800 138 1111
National Debtline: Full debt help service. Link: National Debtline or call 0808 808 4000
Citizens Advice Bureau: Full debt and consumer advice service. Link: Citizens Advice or visit your local CAB centre (find nearest)
Christians Against Poverty: Debt counselling agency, which specialises in helping those who are emotionally struggling too. The religious focus is why they do it, not how they do it. Link: Christians Against Poverty or call 01274 760720.
Try to pay something
Negotiations with a lender can involve asking to move your payment date, or suggesting a smaller monthly payment for a specified period. The bank should listen to these, and make suggestions of its own (talk it through first with the debt counsellors).
Extending the mortgage term.
By lengthening the term e.g. from 20 to 25 years, you spread the debt over a longer period, thus reducing the amount that needs repaying each month. Over the long run it does mean you’ll pay more interest, so once you can cover the old level of repayments, try to reduce the term again.
Request a payment holiday.
If you just need a short time to catch up, see if the lender will consider allowing you a payment holiday. It may impact your credit score but, if it buys you enough short term time to keep things on track, it should be worth it.
Switch to interest only.
To really reduce the payment, ask if you can switch to an interest only mortgage, so you are no longer paying off the actual loan itself. This will drastically reduce the amount you pay each month. As this will cost more in the long term, consider asking if you can shift to interest-only for a set period only.
If repossession’s already happening?
This really is worst case scenario time, but it’s important to know what would happen. If your home is successfully repossessed by the lender, it’ll then sell it to get the money to repay the debt.
Never try and fight repossession on your own, it is a legal issue, and you need legal advice as soon as possible. The Housing Duty Scheme, by Community Legal Advice or on 0845 345 4345 can give free advice at around 100 courts across England and Wales. Failing that one of the debt help agencies should be able to provide info.
There is also a useful five minute video explaining what to do and what happens at court (if things get that far) on the Direct.gov website.
If the house does sell for less than you owe it, it may want you to cover the unpaid debt, known as the mortgage shortfall. Yet this is no longer a 'priority debt', so the bank can’t take your possessions in its place.
The lender can pursue you for the shortfall for up to twelve years, and six years for any interest. There’s an excellent factsheet on the National Debtline website.
A. Payment shocks, where the amount of money being earned falls, or the amount of money needed to cover bills jumps, can hit even the most financially organised of people, especially in times of economic strife.
However, steps can be taken to lessen their impact
Do a Budget NOW.
Budgeting isn’t just for those struggling to get by; taking the time to do one is the first step anyone should take when organising money. That way you can see if there is any spare cash, and if possible squirrel it away to act as a buffer when times get tight. Use the Free Budget Planner
If you’re already feeling the squeeze, a budget becomes even more important. Go through all of your outgoings with a fine toothcomb, and combine with the Money Makeover to trim your costs down as low as possible. You’ll be able to see if it’s possible to still meet your vital bills.
Check your benefits.
If you’ve lost your job, sign-on straight away. Yet often those in work are entitled to substantial benefits or tax-credits too. Read the full benefit check-up guide for more info.
Talk to your lender.
If you forsee that making repayments could be difficult, and you don’t have MPPI, then speak to your bank. Any state help you may eventually get requires you have talked through the situation with your lender, and begun negotiating a payment plan.
Some options will include switching temporarily to an interest-only mortgage, taking a break from repayments, or extending the term of the mortgage. These can help in times of financial hardship, but always remember that they’ll all add to the cost of the mortgage over the entire term.
Don’t miss repayments without talking to the lender first. It has far less impact if you’ve agreed a missed repayment or communicated that it's happening. Missing a repayment without informing your lender triggers the “arrears” issue immediately and starts the clock towards repossession.As any bank will be partial, in that it wants its money back, particularly in the midst of the credit crunch, also contact a free debt help agency such as the Consumer Credit Counselling Service or National Debtline (read the full Debt Problems guide)
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