The UK mortgage market is facing mounting stress with mortgage arrears seeing a sharp increase in the final quarter of 2023, according to the latest figures released by the Bank of England [1]. This data reveals a concerning trend of rising financial difficulties for households across the nation. The statistics show that mortgage arrears jumped by a staggering 9.2% in the last three months of 2023, compared to the previous quarter.
Even more concerning is the year-on-year rise, with arrears soaring by 50% when compared to the same period in 2022. These figures underscore the growing strain on homeowners and their challenges in keeping up with their mortgage commitments. The primary drivers behind this surge in mortgage arrears are high interest rates and the increasing number of people leaving the job market in recent months. As disposable incomes shrink, households are forced to make difficult choices, often having to cut or suspend various monthly bills, including their mortgage payments, to make ends meet.
What are Mortgage Arrears?
Mortgage arrears occur when you miss one or more repayments on your mortgage loan. Mortgage arrears are a serious issue that can lead to your home being repossessed if the situation is not resolved.
What Happens If Your Mortgage Is in Arrears?
If you miss a mortgage payment, your lender will attempt to contact you, usually by letter or phone, to find out why the payment was missed and try to agree on a solution to resolve the arrears. If you don't respond or cannot come to an acceptable arrangement, the following steps will likely occur:
Late payment fees will be added to your mortgage account balance.
Your credit rating will be negatively impacted, making it much harder to get approved for loans, mortgages, credit cards etc. in the future.
Your lender can begin legal proceedings to repossess your home if the arrears persist for several months.
It is very important to be proactive and communicate with your mortgage provider if you are struggling to keep up with payments. Ignoring the situation will only make things worse in the long run.
Dealing with Mortgage Arrears
If you know that you will be unable to meet your mortgage payment, the first step is to contact your lender immediately. Don't bury your head in the sand - the sooner you are upfront about your financial difficulties, the more options may be available. Your lender has to treat you fairly and may be able to offer one of the following solutions:
A temporary payment holiday or reduced payment plan until you can get back on your feet
Capitalising the arrears amount by adding it to the overall mortgage balance
Extending the remaining mortgage term to reduce your monthly payments
Switching to an interest-only mortgage temporarily to allow smaller payments
You should also seek advice from a free, reputable debt charity such as StepChange or the Citizens Advice Bureau. Their expert advisers can negotiate affordable repayment plans with your mortgage lender on your behalf. They will also be able to advise on ways to maximise your income and prioritise debts. If you are in mortgage arrears due to job loss or reduced income, make sure you are receiving all the state benefits you are entitled to. These can provide crucial financial support until you can increase your earnings again.
Mortgage Protection Insurance
Mortgage payment protection insurance policies are designed to cover your mortgage costs if you cannot work due to redundancy, accident, sickness or critical illness. If you have a valid mortgage protection policy in place that covers your current circumstances, it can provide a much-needed safety net to ensure your mortgage is paid and avoid any arrears while you get back on your feet financially. However, it's important to check the terms and exclusions, as these policies have strict criteria as to what job losses or illnesses qualify for a payout.
Selling to Avoid Repossession
If your financial situation has become so dire that you genuinely cannot foresee a way to become financially stable and clear the arrears, obtaining a house valuation and selling your property may be an option to avoid having it repossessed. There are a few key points to note:
You will need your lender's formal approval (known as a 'mortgage shortfall term') to sell with a remaining mortgage balance
The sale proceeds must cover the outstanding mortgage balance, arrears and selling fees (estate agent, solicitor etc.)
You may be able to negotiate an 'assisted voluntary sale', which allows you to remain in the property until it is sold
While not ideal, the lender would prefer you to sell as this avoids the lengthy repossession process for them and any costs this incurs will be passed onto you.
Repossession Timelines in the UK
In most cases, several months of arrears will have accrued before a lender reaches the stage of repossession proceedings. The general timeline is as follows:
Missed payment: Lender requests reason and tries to negotiate a solution
3 or more months of arrears: Lender issues formal arrears notice letters as a final demand
6 or more months arrears: Only at this stage can the lender apply to the court for a repossession order
If granted, the order states when you must leave (typically at least 28 days notice)
Eviction only occurs if you fail to leave by the date specified in the order
Throughout this entire process, which can often take over 12 months from the first missed payment, the borrower has windows of opportunity to pay off the arrears, negotiate a repayment plan, obtain a house valuation and sell the property to avoid it being repossessed.
Mortgage arrears are an extremely stressful situation, but not an insoluble one if you take action quickly. Acting with urgency, open communication with your lender, accessing all the free debt support available and being realistic about your financial capabilities could help you find a manageable solution.
For additional information about mortgages, please visit onedome.com/mortgages/mortgages-explained. OneDome and CMME Mortgages operate under the same parent company and CMME Mortgages is authorised and regulated by the Financial Conduct Authority to provide mortgage services.
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Resources:
[1] https://www.theguardian.com/business/2024/mar/12/uk-mortgage-arrears-rise-in-2023-last-quarter-amid-surge-in-borrowing-costs
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