Sadly there isn’t a magic wand to deal with mortgage debt – but the nearest thing to a wand is to be calm, structured and systematic when faced with mortgage problems.
Above all, you should not be slow to seek expert advice when things begin to spin out of your control.
Here is a list of the things that can go wrong together with a sensible, structured and systematic approach you can use in each instance.
1. It becomes difficult to make payments
You should be concerned as soon as you start to find it difficult to make payments. This is the time to start worrying, not when things have got so bad you are making under-payments or missing payments.
Prepare a full, accurate honest budget of your income and expenditure and find out why you are having an income shortfall.
If you find it is not a good reason – such as you spending too much on non-essential or “discretionary” items – sort it out at once; stop your bad spending habits immediately and get back on track.
If there is a genuine shortage of income, look to take action fast using one or more of the many ways to boost your income, including:
- Second job
- Seeking a pay rise
- Renting out a spare room
- State benefits to which you may be entitled.
It is usually best to get in more income but if that is not possible you may be able to get a manageable affordable loan until you can grow your income.
Be extremely wary about relying on a credit card, especially if expensive, as that could end up making things worse.
If your problem lies with the number of debts you have, remember that your mortgage should be your number one priority – for obvious reasons.
2. You get to the stage of missing payments
A critical point is when you are two or more months behind with your payments. At that point your lender may have the legal right to take you to court with a view to evicting you.
In reality most lenders will show a certain amount of leniency before they instruct solicitors but you should not depend on it.
As soon as you go behind with your payments, even if just by a pound, contact your lender and give them a full, clear, documented and frank account of your position and why you are having difficulties.
Provide them with your comprehensive household budget and inform them when you expect things to improve and how.
If you can reach a payment arrangement which you can realistically keep, great.
If not, seek debt advice at once from an expert, not from your best friend or neighbour – unless they also happen to be debt experts.
You can contact organisations such as your local Citizens Advice Bureau or an online agency such as the Money Advice Service.
If the primary problem is too little income coming into the household budget, take priority steps to boost your income.
If your problems are due to marriage or relationship breakdown, go and see a solicitor.
It is important to look at all alternatives, including selling up and moving to more affordable accommodation.
Many people end up losing everything because of trying to preserve the status quo when it is financially impossible to do so.
3. You receive your first warning letter
Upon receiving the very first letter which amounts to a warning or threat by your lender, seek legal advice from an advice agency or solicitor. If you need to pay for legal advice, do so.
Avoid the temptation to skimp on necessary good legal advice by relying on the misguided belief that it will cost you money you don’t have.
You will lose a great deal more if your home is repossessed on account of your delay in taking legal advice.
If you need money for legal fees, don’t be reticent to ask family or friends for help at this early stage. It may be much more embarrassing – and you are more likely to be turned down – if you ask them later when thousands of pounds are due from you in a short period of time.
Provide your legal advisers with all the relevant documents and letters, explaining in chronological order how your problems have arisen and why.
If you are given specific advice to take some or other action, follow the advice. Don’t dilly-dally or drag your feet. Recognise the gravity of your situation and give it due priority.
See also: The importance of savings (the reasons for always having money in reserve)
4. You receive a court summons
You will only get a summons if you have not dealt with things properly up to that point – and are in substantial arrears
It is easier and cheaper to prevent court proceedings than to stop them once started. You should therefore be absolutely focussed on preventing the issue of a summons and the start of court proceedings.
If you do get to the point where a summons is sent to you, your priority is to move fast.
If you haven’t sought legal assistance up to the point of receiving a summons, you should do so on receipt. Note any court date and set yourself the target of clearing the arrears before the hearing.
You may need several thousand pounds to clear the arrears and you need to look at every available possibility to raise money to clear the arrears, including borrowing from family, friends or employer or getting a loan.
This is a time when you must not be reticent or embarrassed about asking for help.
5. The bailiffs are coming
If you are at the point where the bailiffs are coming, you are very much drinking in the last chance saloon.
On the date stated in the bailiff’s warrant, the bailiffs are going to arrive in force, change the locks and evict you – along with your family, if any.
At this stage time is of the essence. When it gets to this point, lenders have usually lost all sympathy for you or your circumstances. They will want their money.
Your minimum goal should be to get together the amount needed to clear all the arrears and costs to that point.
If you can do that, you may be able to make an application to the court and delay or stop the eviction by “suspending” the bailiff’s warrant.
Sometimes clearing the arrears will not be enough – the lender wanting the entire amount due to them – capital, arrears and costs.
In that case you need a new lender prepared to lend to you or more realistically you need to find a cash buyer willing and able to step in and buy the property from you before your lender takes possession with a view to selling.
If you are at this desperate stage, you need to be calm, cool and clear-sighted as far as possible.
In particular you need to be realistic about all money matters. The offer you are going to get from a cash buyer is not going to be the full market value of your property.
You should carefully weigh up the various risks, disadvantages and demerits. It can be quite an overwhelming situation and it is vital that you consult with and seek advice at the personal and professional level.
You may be reluctant to sell to a cash buyer because of the amount being offered; however, if failing to accept will lead to repossession and greater financial and non-financial losses, it is a matter of acting in your best interest.
6. The golden rules
Getting into mortgage arrears is something that can happen to any homeowner – for good reasons or bad.
Whatever the cause, the important thing is how well you go about finding a solution which will keep you in your home and stop you from losing large sums of money.
You can help yourself by following “the 3 don’ts” :
- Don’t bury your head in the sand
- Don’t delay in responding to warning letters
- Don’t delay in seeking good professional advice.
Do you have any tips for dealing with mortgage problems? Please leave your comments below.
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Rebel Property Coach
My website is: www.rebelpropertycoach.com