Can't meet your monthly mortgage payments? Don't panic
Not everyone is benefitting from lower rates, and if you're struggling to meet your monthly mortgage payments there are positive steps you can take
Not everyone is benefitting from lower rates, and if you're struggling to pay your mortgage there are positive steps you can take
If you read the papers you could be forgiven for thinking that every single mortgage borrower in the country is paying super-low monthly repayments and is awash with the money they have saved.
With the Bank of England Base Rate at its lowest ever level, many have indeed enjoyed huge falls in their payrate. But a great many borrowers have not seen any benefit.
More than half of all mortgagors have a fixed rate according to the Council of Mortgage Lenders and this means they haven't seen their monthly repayments decrease at all. But what they may have noticed is the rising cost of living over the last year, including hikes in utilities (thankfully now slightly falling) and food costs. And of course many people have also lost their job.
These unfortunate borrowers could well be having problems making ends meet, particularly if they overstretched when they took out their homeloan.
So why don't they just remortgage to a cheap deal?
There are cheap new deals from as little as 2.5%, but these competitive products are almost always reserved for low risk borrowers with a huge amount of equity in their homes. Lenders want protection against negative equity and having a large chunk of equity - say 40% - offers them this security.
However, if you have a small amount of equity, or none at all, quite frankly you are not wanted by many lenders. And if they will take you on, they will certainly charge you a premium for the privilege. High LTV mortgages are few and far between, and they are expensive, reflecting the risk lenders feel they are taking. If you can't meet your repayments and the lender has to repossess, they don't want to be left with an asset that won't cover the debt when sold.
So, for a large swathe of the mortgaged population cheap repayments are not a reality, and this combined with problems in the wider economy is leading to more and more people falling behind on their repayments. As fellow fool Cliff D'arcy explains in Mortgage Repossessions Double! both arrears and repossessions are rising fast -- plus new figures due on Friday 19th look set to confirm this.
Indeed, according to the Council of Mortgage Lenders (CML), over half a million people will fall behind with their mortgage payments this year. From April to December 2008 Citizens Advice saw a 46% increase in the number of new secured loan and mortgage arrears enquiries compared to the same period in 2007.
But the organisations are urging borrowers not to ignore the problem. They advise that speaking to your lender immediately is the first step to getting out of trouble. In addition, they point out that free confidential, independent advice is available and should be sought straight away.
Below are the CML, Citizens Advice and Shelter's top tips for mortgage borrowers:
What to do if you are in trouble
1. Don't ignore your debt problems.
2. Don't stop paying your mortgage altogether. Continuing to pay what you can on a regular basis will help you reach an agreement with your lender. This is also an entry requirement for some of the Government support schemes.
3. Don't send the keys back and walk away: you are still responsible for the debt on the property.
4. Don't enter a sale and leaseback scheme without advice. These schemes can be misleading and are not yet regulated.
How to get out of trouble
1. Contact your lender, the earlier the better. Your lender will work with you to try and find a repayment solution. Your lender may be able to: lengthen the mortgage term, add your arrears to the outstanding debt, switch to an interest-only basis, or temporarily reduce your payments.
2. Get free, independent debt advice: organisations like Citizens Advice, Shelter, and National Debtline can help you manage your debts, talk to your lender, and offer advice on the new government assistance schemes.
3. Check if you are eligible for assistance. Are your payments covered by an insurance policy? Are you eligible for help towards the mortgage through the benefits system? You may be eligible for one of the Government assistance schemes: check with a free and impartial debt adviser.
4. Attend court: borrowers who attend possession proceedings are more likely to reach an agreement to stay in their homes. Remember, the court is independent to make sure a fair decision is reached.
Avoid getting into trouble in the first place
1. Overpay if you can afford it: If you are benefiting from lower mortgage rates, you could consider overpaying each month, though it may make sense to pay off any more expensive debts first. This will improve your equity position, reduce your interest payments and can shorten the length of your mortgage.
2. If you have an interest-only mortgage switch to a repayment basis: Use this period of low interest rates to switch to a repayment mortgage and start to pay down your loan. Remember to check if there are any charges that may be associated with this first.
3. Prioritise your debts: If you don't pay your mortgage you risk losing your home, so pay your mortgage and utility bills before unsecured debts like your credit card.
Finally, remember that you don't have to pay a debt management company, as there are many sources of free debt advice available. These include:
Citizens Advice - www.adviceguide.org.uk
Consumer Credit Counselling Service (CCCS) - www.cccs.co.uk
National Debtline - www.nationaldebtline.co.uk
Payplan - www.payplan.com
Shelter - www.shelter.org.uk
The Financial Services Authority - www.moneymadeclear.fsa.gov.uk
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