Nick Huber
November 2016.

What can I do if I default on my mortgage?

1 answer

If you get behind on your mortgage payments, the lender will want you to clear these arrears and could start court action resulting in you losing your home. 

Before it gets to this stage, it’s important to take action as quickly as possible. It is often possible to negotiate an arrangement with your mortgage lender, so contact them and explain your circumstances to see if this is possible. 

There are plenty of sources of free, impartial advice about debt management. Approach a genuine charity, rather than a commercial debt management business, and they will be able to help you draw up a plan of action no matter how desperate the situation can seem, there is always a solution and things will get better in time. 

Once you’ve spoken to your mortgage lender and let them know the reasons you cannot keep up with your mortgage payments, you will need to make a budget, listing your income and expenditure. You will need to prioritise this spending, breaking it down into essential and non-essential items, to understand where cuts could be made to what you spend each month. 

"There is always a solution and things will get better in time"

Debts which are not secured on your home, such as credit cards and other personal loans, are lower priority than keeping up your mortgage payments. If we see a sustained rise in price inflation, then interest rates are likely to rise too. For interest rates to rise, the Bank of England needs to see the economy overheating, rather than price inflation in isolation, and we do not think the economy is in a strong enough position to sustain rate rises at this time. 

When interest rates rise, this can quickly turn otherwise affordable monthly mortgage payments into an affordable burden. Higher interest rates are correlated with more people defaulting on their mortgage payments, simply because costs have risen sharply. The Bank of England has previously warned that interest rates rising to 2.5% would increase the number of households facing mortgage difficulties by a third to 480,000. We last saw a dramatic increase in interest rates in the early 1990s, which prompted the biggest property price crash since the Second World War.

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