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02nd July 2018
It should be avoided at all costs but, at some point, you may find yourself behind on your rent or mortgage payments. Whether you are in arrears with money owed to either your lender or your landlord, it’s a tough situation, but it’s not the end of the world.
Miss payments on your home and you could face repossession. If you’re on track to miss mortgage or rent payments, take a look at our advice below and realise that you do have options to help avoid serious repercussions. Hopefully, this will help to give you the peace of mind and clarity necessary when it comes to stressful debt situations.
Please remember that this is only a guide – if you find yourself in a serious debt situation, it’s important to talk to an independent financial advisor for further information.
If you are unable to make your mortgage payments, or know you’re on track to end up in arrears, the first step you should take is to make sure that you are addressing the issue head on. As we’ve mentioned, the worst case scenario will see you having your home repossessed – as such, it’s best to deal with an arrears situation as soon as it starts to arise. To avoid the situation altogether beforehand, consider the positives and negatives of taking out MPPI.
Be proactive and contact your lender before they contact you. The best mortgage arrears advice you can be given is that you need to show your lender that you want to work with them to resolve the situation. When contacting a mortgage lender, try to come to an agreement with them about how you can deal with your debts. Legally, a lender cannot start on the path to repossessing your home while you’re working out a deal with them but, more importantly, they wouldn’t want to repossess your home anyway.
So, you’ve contacted your lender, but what options do you have when working out how to clear your arrears?
Your lender may offer you a change in how your rate works. For instance, you could be switched to an interest-only mortgage. This means that you’ll only pay the interest your mortgage accrues each month without paying off the capital value of the property. This is only a short-term solution and you will still need to cover what is owed on the property itself at some point.
You could also extend the term of your mortgage. You’ll be paying less each month but, depending on how much less you pay, it could take a lot longer to be mortgage free. Nevertheless, this could be a very straightforward way for you to avoid falling into arrears on your mortgage.
Depending on your situation, we can also recommend taking a mortgage payment holiday. A payment holiday will allow you to take some time off from forking out the cash for those mortgage payments and can last from a month to over a year in some cases. During this time, you’re able to better your circumstances in order to make your repayments at a later date.
Of course, when your ‘holiday’ is over, your monthly repayments will be higher. Therefore, this option is only suitable for those able to get back on their feet quickly after falling into arrears.
In a worst-case scenario, if you can’t afford to pay back your arrears, your lender will arrange for a court order to have your home repossessed. The property will then be pushed through to a quick sale at auction. Due to the quick sale process, you’re very unlikely to get the price you would be getting if you sold your home yourself. Furthermore, if the money earned from the sale doesn’t cover the total that you owe to your lender, you’ll still have to find other ways to pay it back.
You don’t want to be in a position where repossession is going to occur.
If you find yourself heading towards arrears and repossession is looking like an inevitability you should look into selling your home by yourself. Assisted voluntary sale schemes that see your lender giving you extra time and assistance to sell your home are available and it will help you avoid having your property taken. By selling your home early, before your situation gets any worse, you could come out on the other side with some extra capital and no repossessions on your record. This is important, as if your home is repossessed you may find it very difficult to get a mortgage in the future.
As with your mortgage, you can also fall into arrears when you don’t pay your rent. As you won’t owe to a lender, but to a private entity, there are a number of differences in how you should deal with rent arrears. Help with rent arrears may not be as easily available as it is for mortgages, but it does still exist.
Firstly, if your landlord tells you that you’re in arrears, make sure that you actually owe what your landlord says that you owe. Check your bank statements or ask to see receipts (if you pay your rent in cash) to double-check the amount that your landlord is claiming you have not paid is correct. As with mortgage arrears, you shouldn’t hide from your rent arrears and speak to your landlord quickly and directly – it’ll go a lot more smoothly if you tackle the issue head on.
Try to organise a repayment plan with your landlord; if they agree to it, be sure to have it written down and signed by both parties. While your landlord isn’t obliged to agree with you, if they do take legal action against you it’s worth having records of your attempts to come to an agreement with them.
Unlike a mortgage lender, your landlord is not liable to try and assist you in getting out of arrears. If you can’t pay your rent, apply for housing benefit and be sure to draw up a stringent budget to get back on track.
If the housing benefits you’re entitled to don’t cover the cost of your rent, you can sometimes get a discretionary housing payment (DHP). This will make up the rest of the month’s rent, but isn’t always an option.
As well as having no obligation to offer you assistance, it’s also a much faster process for landlords to seek eviction than it is for mortgage lenders to seek repossession. If you fall into arrears, it’s likely that – if you haven’t come to an agreement – your landlord will ‘seek possession’.
They must first give you written notice to say that they’re seeking to evict, but will require a court order before they can actually do it. If they are granted a possession order, except for in extenuating circumstances, you’ll likely be given no more than 14 days to leave the property. There are a variety of avenues your landlord may pursue to evict you, but it is very rare that you’ll find yourself in a position where an order of possession may be overturned.
Overall, when it comes to rent arrears, you should attempt to deal with the situation as soon as possible. If you even think you may miss a payment, talk to your landlord immediately and begin budgeting your money to avoid eviction.
To discover which mortgage options are best for you, seek the professional financial advice offered by the friendly team here at IMC. We’re always happy to help.
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