Advice for homeowners in financial difficulty
Many people have periods where due to a drop in income, or unexpected costs they struggle to pay their bills and mortgage costs.
The following gives general advice and guidance about what to do and where to seek help.
On this page:
- Step 1 - work out a budget and identify unnecessary expenditure
- Step 2 - talk to your family
- Step 3 - double check whether you have any insurance that could help
- Step 4 - if you still don’t have enough money pay your priority debts first
- Step 5 - talk to your mortgage company / lender
- Step 6 - check your entitlement to benefits including support for mortgage interest
- Step 7 - your home is simply unaffordable and you need to sell
- Step 8 - court
- Contact us for more help and advice
A good starting point is to draw up a budget. It will ensure you know exactly what money you have coming in, what your essential outgoings are, and where you might be overspending and could cut back.
It should include all spending, including: home insurance, service charges, council tax, utilities, food, childcare, transport costs, clothing, hire purchase, loans and credit card repayments, and all other non-essential expenses.
There are many templates which can help you including:
Look at non-essential payments or spending and whether any of them could be cut:
- regular charity donations
- fees to membership organisations and groups
- magazine or TV subscriptions
- gym membership
- take away coffees
- eating out, takeaways, and buying lunches at work
- drinks after work
Finally look at your essential spending and identify where you can make savings:
- could you shop around for a cheaper deal on your utilities, broadband, home and car insurance?
- can you reduce your shopping bill, by moving to a budget or buying non-branded products?
- could you save on transport costs by using public transport or by walking or cycling instead?
- do you need a second car, or could you get rid of your car?
If you’re making a lot of cash purchases, keep a spending diary and write down everything you spend over a month to identify where money could be saved.
It’s always better to share information about financial problems with your close family than keep it to yourself, as they could help to find a solution.
If your budget shows that you still can’t afford to cover all your outgoings, could any of your household / family members contribute towards household expenses until you are back on your feet?
If the property is repossessed your family will lose their home as well, so they should be included in all decisions.
Check your mortgage paperwork to see whether you took out mortgage payment protection insurance when you applied for your mortgage. This can help if your income has fallen due to redundancy, accident or sickness.
If you have other debts, check whether you have payment protection insurance if you have suddenly become sick or can’t work.
- your mortgage
- council tax
- TV licence
- child maintenance
- gas and electricity
- court fines
- income tax
If you don’t have enough money you should always pay your mortgage and council tax first.
Debts like personal loans, overdrafts, credit cards, payday loans, store cards, and hire purchase are not priority debts and the consequences of not paying are less serious.
Don’t ignore these debts, but they are less important than keeping the roof over your head. Your creditors they might be willing to accept a smaller amount each month, or freeze your interest especially if you have mortgage arrears.
Don’t do this by yourself. Seek debt advice and assistance from a recognised charity, who may be able to help you organise a repayment plan:
Never use a company that charges for debt advice. There are plenty of free charities out there that can help.
If you are in financial difficulty, let your mortgage company know. They’ll be keen to talk to you and discuss options.
They must make reasonable attempts to reach an agreement with you, including giving you reasonable time to make good any shortfall in payments, including considering whether to change the way and time you make payments.
Try to come to an arrangement with them, but only ever offer to pay back what you can afford. Even if you can’t pay your full mortgage payment, you should still try and pay as much as you can.
It’s always better to pay some money than nothing. By making small payments it can show your lender that you are reliable, trying to manage your budget and are prioritising your mortgage.
It can be very simple to come to an arrangement with your lender to reduce your payments. Have your budget ready so they can see all your outgoings.
Things that the lender might do include:
- switching from a repayment to an interest only mortgage
- adding any arrears to the balance
- increasing the term of the mortgage
- allowing you a short break or payment holiday
- temporarily reducing your payments until your situation improves
Make sure you are fully aware of what you have agreed and the potential consequences. Easy solutions like increasing the term of the mortgage will increase what you pay over the longer term.
Switching to an interest only mortgage is OK, but you’ll need to work out how you will pay back the capital at the end of the mortgage term.
Use a benefits calculator to check whether you’re entitled to any additional benefits or help. If you’re sick or have lost your job you may be entitled to contributory benefits based on your national insurance contributions.
If your situation is unlikely to change in the long term, and you can’t afford your mortgage, you may need to consider selling your home.
Your home is likely to sell for more if sold before repossession and you will have more control of the process. After repossession lenders tend to sell at auction where sale prices are lower.
You should always proactively try to sell your home or use an assisted voluntary sale, instead of walking away from the property and handing back the keys (voluntary repossession).
If you post back the keys, you would:
- continue to be liable for your mortgage payments
- continue to be liable for any arrears owed
- continue to be liable for other costs, such as building insurance
- have to pay your lenders selling costs
You may have made yourself intentionally homeless if you subsequently want the council to house you.
Selling your home
Before making any decision to sell you need to consider where you will live. If you have equity in the property you might be able to use it to:
- move to a cheaper part of the country
- downsize to a smaller property
- help meet the rent on a property
Never sell your home without having a place to live. We might not help you with temporary accommodation if you’ve made yourself intentionally homeless. You should speak to us about your future housing options if you need to sell.
Before selling get a valuation on the property and a figure of the outstanding debt. If the selling price doesn’t cover the mortgage and any other debts on the property you’ll need the permission of the mortgage company to go ahead with the sale. If it won’t bring in enough money to cover the debt you’ll still be liable for any difference.
You’ll need to think carefully about your income after the sale. If you have capital over 16,000 you may not be able to claim some benefits.
Other options include:
Lenders only start court action to repossess your home as a last resort. Before you lose the property the lender will need to go to court for a possession hearing.
The fact they have gone to court for repossession doesn’t mean that you are guaranteed to be repossessed. A judge will make the final decision about whether you can keep your home.
You should always seek legal advice before the repossession hearing. If you’re on a low income you may be able to get legal aid to help with this.
If you contact us we will be able to give you details of local solicitors who may take legal aid or may be able to help.
Housing possession court duty scheme
As a last resort you can get last minute help on the day under the housing possession court duty scheme. It will provide you will a specialist advisor on the day of your hearing to represent you, and who will help try to come to an arrangement with your mortgage lender. If you want more details of this please contact us.
You should always attend the court hearing
If you don’t attend it’s likely the judge will give the lender permission to evict you.
As part of the process you will be sent a defence form to fill in which you can use to explain why you think the lender should not repossess your home, which you must return. The court hearing is your last chance to explain to the judge why your home shouldn’t be repossessed and to show how you can meet your mortgage payments and arrears.
It helps if you can explain to the judge how you can afford to pay the arrears. If you’re offering regular payments you would need to explain how you can afford your regular payments and to clear the arrears and provide proof.
You should bring full proof of your finances, including evidence of any future changes such as a job offer. You can also ask the court for more time, as long as you can prove that you are going to sell the property or will be able to clear the arrears in the near future.
The judge will listen to both you and your lender and could decide to:
- adjourn (delay) the hearing and give you more time
- set aside the case, which means no order will be made and the hearing is finished
- make a repossession order in the lenders favour
If a repossession order is granted this gives the lender a legal right to own your home, usually 28 days after the court hearing.
We’ll be able to advise you on the process, including:
- helping you with budgeting and getting you debt advice
- talking to your mortgage lender on your behalf, to see if they will come to an arrangement
- helping you to get appropriate legal advice
- looking at your future housing options if you’re forced to sell the property, or are repossessed