Mortgage Arrears: What To Do Next?

Interest rates around the world are rising due to a sharp increase in inflation as a result of significant money printing during the initial phase of Covid-19 and then the Russia-Ukraine war. In the UK, inflation has climbed as much as 10% primarily due to energy prices, which has led the Bank of England to raise interest rates to 1% to slow inflation down. Savers are finally in some luck in the sense that they will see more return on their savings since 2009. But homeowners and landlords with mortgages will experience higher monthly repayments.

Homeowners who are currently on a fixed-rate mortgage are “safer” until the period ends. And then they are required to either change mortgage lenders or experience a variable rate. Either way, their monthly repayments are likely to increase than the current monthly expense today. On the other hand, landlords with interest-only mortgages may have already experienced an increase in their repayments. Rents have increased to maintain gross profit margins, but this increase with stagnant wages and salaries could lead to tenants choosing not to pay.

Homeowner or landlord, or both. It is essential that you prevent going into significant mortgage arrears. Because you will eat into your “share” of the property. Our friends at Molae Properties have shared the next steps you should take if you are beginning to fall into mortgage arrears

Review Your Expenses

One of the first actions you should take when you have entered into arrears is to review your expenses. The most effective way to do this is to group your expenses into categories. Such as food, leisure and entertainment, and subscriptions. Export bank transactions dating 12-months into a spreadsheet and begin categorising to effectively analyse where spending can be reduced, or eradicated. Pay special attention to subscriptions because Brits waste £800m on unwanted subscriptions every year. Once you have completed this exercise, you should have significant monthly savings. That allow you to keep on top of your repayments going forward, but it does not address the payments in arrears.

Work With Your Mortgage Lender

Mortgage lenders by law must support those who have fallen into arrears before repossessing the property. In addition, they would rather the mortgages are paid than have to repossess the property. However, it is important to admit you have fallen behind and are willing to accept any help, otherwise, you could make matters worse. You have already taken the first step by reading this article before letting the situation become more severe. 

Get in touch with your mortgage lender to find out if they are willing to break your arrears into small monthly repayments. In addition to your usual repayments. This is usually a good option if you have analysed your expenses and managed to reduce them significantly. Alternatively, you could ask your mortgage lender to increase the term of your mortgage to decrease the monthly repayments. Which is an ideal option if your income has declined and/or expenses are difficult to reduce.

Conclusion

Falling into mortgage arrears can be an upsetting experience. But the most important action you take, is action, as opposed to passively ignoring the problem. Therefore, review your expenses and reduce unnecessary costs, and work with your mortgage lender. In the worst-case scenario, get in touch with Molae Properties so you can sell your property quickly before the mortgage lender takes it and you lose control.  Bear in mind that if the mortgage lender repossesses your property it is not the end of the matter.  Once the bank has your property, you still remain responsible for your mortgage payments for as long as it takes the mortgage company to sell your property.  Plus they will add any professional fees associated with the sale of your property to your mortgage debt.  It is invariably preferable to sell your property to prevent it from being repossessed.

Adnan Sarpal

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