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What does it mean if your mortgage is in arrears?

The cost of mortgages has recently hit a 15-year high and many are wondering how they will be able to continue their monthly payments if the trend keeps up. The Bank of England has said that up to one million people will see their mortgage bill rise by £500 a month by the end of 2026, which is causing misery for homeowners who are already struggling amid the cost of living crisis. Here, we will look at what it means if your mortgage falls into arrears and steps you may be able to take to ease the strain.

What happens when your mortgage is in arrears?

Mortgage arrears occur when you are behind with your monthly payments, and these missed payments will be recorded on your credit file. If you miss a payment, your mortgage provider will get in contact to find out why this has happened and offer you options to make the payment. 
Some of these plans include:

– Paying it off in instalments by adding it to the total mortgage 
– Changing to an interest-only mortgage
– Offering a payment holiday
– Extending the mortgage term.

These choices depend a great deal on your individual circumstances and may not all be available. 

How long do mortgage arrears affect your credit rating?

Any mortgage arrears – whether they are missed, partial, or late – will be recorded and included on your credit file for at least six years. Your mortgage provider will wait until the payment is 30 days past its due date before informing credit bureaus, but the effect it has on your credit rating will be worse the longer the payment is put off, and it may cause as much as a 180 point drop.

How many mortgage payments need to be missed before repossession?

In general, lenders won’t start any repossession or legal proceedings until there have been three or more missed payments, however this could be less with some banks and building societies. They will also try to recoup the money in other ways before they resort to repossession, so there is always a chance of setting up a payment plan or asking for some sort of government help. It is always best to contact your lender as soon as you start to struggle, so they can be aware of the situation and offer any potential help.

Can I remortgage with bad credit?

Yes, it is possible to remortgage with bad credit, but, if you are over the age of 55, we would recommend looking into equity release. With an equity release plan, such as a lifetime mortgage, missed mortgage payments will not affect your interest rate or borrowing because the mortgage is based on the property value and your age, not your credit rating.

With a lifetime mortgage, you will be able to release a lump sum from your home which can pay off your existing mortgage, leaving you free of monthly payments and a loan that only needs to be paid after you pass away or enter long-term care. For those who are starting to feel the pinch of increased payments, equity release mortgages can help alleviate the struggle and allow you to live more comfortably as you get older. You can also make interest payments if you wish plus many options to consider before deciding which plan is best for you. 

How many UK mortgages are in arrears?

According to data from UK Finance, there were over 76,000 mortgages in arrears of more than 2.5% of the outstanding balance in the first quarter of 2023. Whilst the mortgage landscape looks bleak, there are ways to improve your financial standing. In later life, the worry of how you will continue to live can be ever-present, which is why we look at equity release as a way of helping homeowners enjoy life post-65 without the worry of monthly mortgage payments. Speak to one of our advisers today to see if an equity release plan such as a lifetime mortgage could help you pay off your existing mortgage and free yourself of mortgage worries. 

With the mortgage landscape being so uncertain and the cost of living crisis causing stress for so many homeowners, equity release could be a suitable way of maintaining financial independence later in life, without having to move home or struggle with monthly repayments. Speak to one of our advisers today or use our calculator to see how much you could release.