If you’re struggling to pay your mortgage, there are options out there to help you – from payment holidays to going interest-only, we explain how it all works
Mortgage rates are starting to fall – but the deals available are still much higher than they used to be.
If you’re struggling to pay your mortgage, there are options out there to help you. Before you work out which help would be best for you, you should make a note of all the important bits of information about your current mortgage deal. This includes your current rate, the terms and length and any exit fees, as well as your loan to value (LTV).
Search for a better mortgage deal
If you’re coming to the end of a fixed-rate mortgage, you can normally lock in a new deal between three to six months in advance. Do a search online to compare rates, then speak to a mortgage broker, as they will have access to deals that aren’t always available on the open market.
If you’re on a tracker or standard variable rate (SVR) mortgage, you can normally switch to a new mortgage whenever you please. Follow the steps above to see what other deals are out there and if you could save money by going elsewhere.
The advantage of a fixed-rate mortgage is that you know how much you will pay each month, for a set period of time – however, you won’t benefit from cheaper deals if mortgage rates continue to drop. The market is unpredictable, so no one can be sure how rates will fluctuate over the long-term – and a mortgage is a product that you’ll have with you for many years.
Switch to interest-only payments
Switching to interest-only payments means you’ll reduce how much you pay each month – however, you won’t be paying off the capital you owe on your mortgage. This means you won’t actually be chipping away at your mortgage.
If your lender is signed up to the mortgage charter and you’re not yet in arrears, you should be able to switch to interest-only for six months without it affecting your credit history.
Extend your mortgage term
By extending your mortgage to a longer mortgage deal, you’ll reduce your payments, but you will end up paying more overall in interest. Under mortgage charter rules, you should be able to do this without an affordability check.
Lenders may see smaller repayments on your credit file, but the reason why won’t be marked down. If you try and reverse back to your old term after six months, the lender would do an affordability check.
Take a payment break or reduce your payments
You may be able to ask your lender to pause or reduce your payments for a limited time if you’re struggling. But keep in mind that interest will still be added to your overall mortgage, and you will still need to repay what you owe.
It means you’ll end up taking longer to pay off your mortgage, or your future repayments may be higher. Make sure you check with your lender how this could affect your credit file. A payment holiday that has been granted as part of tailored support may appear as an “arrangement” or if you’ve reduced your payments, arrears may show on your file.
Claim on your mortgage insurance
If you’re in arrears and you’ve got some form of mortgage insurance, then check if you might be able to make a claim. Mortgage payment protection insurance (MPPI) can cover the cost of your mortgage if you lose your job through no fault of your own or you’re unable to work because of injury or illness.
Support for mortgage interest
If you’re struggling with interest payments and you’re claiming certain benefits, you might be able to apply for a support for mortgage interest (SMI) loan from the Government. SMI covers interest on the first £200,000 of your outstanding mortgage, or £100,000 if you’re claiming Pension Credit.
You usually pay back the SMI loan plus interest – currently set at 3.16% – once you’ve sold your home, although there are some circumstances where you have to pay it back earlier. To get SMI, you need to be receiving Income Support, Income-based Jobseeker’s Allowance (JSA), Income-based Employment and Support Allowance (ESA), Universal Credit or Pension Credit.
Mortgage rescue schemes (Wales only)
If you live in Wales, you might be eligible for help through mortgage rescue schemes (MRS) if you’re at risk of losing your home. Providing you have equity in your home, you might be offered a shared equity loan, interest free, from a housing association.
The other help you might be offered is through a “mortgage to rent” programme, where a local housing association buys your property and rents it back to you. You would no longer own your own home and in most cases would be given an assured or an assured shorthold tenancy.
Home owners’ fund (Scotland only)
If you live in Scotland, you might be able to get help through the Home Owners’ Fund scheme. One option is the Mortgage to Shared Equity part of the scheme, where the Government buys a stake in your property – up to 30% – so you can reduce your secured loan.
There is also the Mortgage to Rent part of the scheme, where a social landlord – a housing association or local council – buys your home. You then continue to live there as a tenant – but you no longer own your home and you’ll pay rent.
Get free debt advice
If you have wider debt issues, seek free advice as soon as possible. Speak to one of the following organisations:
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Citizens Advice (0800 240 4420)
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StepChange (0800 138 1111)
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National Debtline (0808 808 4000)
