How many months of mortgage arrears before repossession? (Mar 2021)

If you’re asking how many months of mortgage arrears before repossession, you’re either in or going to be in some financial trouble. In addition, you’ve likely read that the answer is 3 months. The true answer is that the knowledge in this guide can delay your house repossession as long as needed. If you’ve already had a repossession order, get in touch now to see how we can help. 

In this guide you’ll learn:

  • What help is best for your situation
  • How you can access it
  • The best ways to reduce your mortgage payments
  • To sell your house fast for market value if all else fails

frequently asked questions

The minimum amount of mortgage arrears for a lender to begin repossession proceedings is 3 months. But, with the right support you can prevent repossession no matter how much mortgage arrears you have. Mortgage lenders are required by law to make every possible effort to support you before beginning the repossession process. The most important think you can do is contact your mortgage lender to discover what support they can give you.

There are many ways that your mortgage lender can support you if you are in financial difficulty. Generally speaking, the later that you contact them, the less they can offer you so make sure to do this early. They will be able to reduce your monthly payments by doing many different things like switching you to interest only, reducing your rate or giving you a payment holiday.

Selling your house with mortgage arrears is no problem as long as your lender has not begun repossession proceedings. If they have, you may still sell your house but you will need a specialist house buying company who knows how to deal with your situation. This is always better than letting your lender repossess your house. Contact us or get a quote now if this is your situation to see what price we can buy your house for quickly for cash within 14 days.

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Repossession Basics

 

Government Help

I’m Already in Trouble

Repossession Basics

In this chapter we’ll cover the fundamentals of house repossessions. 

First you’ll learn about how lenders work and why they repossess houses.

Then we’ll guide you into how to stop your house from being repossessed with simple steps.

What is Repossession?

Repossession is when a lender takes ownership over something because the borrower has broken the agreement. 

This happens most commonly by the borrower being behind on payments to the lender. 

As a result, lenders can repossess anything the borrower used for security when taking out the loan like a car in a car loan or a house with a mortgage. 

Furthermore, the lender can repossess from the borrower at any point during the repayment schedule, even at the end.

Mortgage Payment Schedule
Principal, blue, and interest payments, orange, over the life of a mortgage

Why do lenders repossess?

The main reason why a lender would repossess a security is to  get the money back that they loaned out to the borrower.

It is expensive for lenders to repossess a security. They also lose their long term interest payments from the borrower by doing it. That is good news for you if you are in arrears.

What are arrears?

Arrears are the amount that someone is behind on payments to their lender. 

For example, if someone has a mortgage payment of £650/month and they have not paid their lender in 6 months, they will be £3900 in arrears. 

At the end of 2019, almost 170,000 people owed money to their lender.

To show people searching for how many months of mortgage arrears until repossession the trends through a graph of how mortgage arrears have changed over time
Graph showing how mortgage arrears have changed from 2007 to 2019. Blue is amount of loans and orange is amount of mortgage arrears. Data from the Financial Conduct Authority

How Many Months of Mortgage Arrears Before Repossession?

The lowest length of arrears for a lender to begin repossessing a security is 3 months. But, with this guide you will learn to avoid a repossession from a lender even if you’ve owed money for longer.

How Likely are Lenders to Repossess my House Compared to Before?

The amount of people who owe their lender money on a mortgage has fallen by 63% compared to the 2009 financial crisis. 

Over the same time, house repossessions have gone down by 87% – that means someone in arrears now is half as likely to be repossessed than in 2009. Stats for repossessions are available here and for arrears are here and here.

To show that the answer to how many months of mortgage arrears until repossession has changed over time
Trends in Mortgage Arrears, orange, and Repossessions, blue from 2007 to 2019.

Why are Repossessions Falling?

Lenders lose profit by repossessing houses from their borrowers. They are also required to “not repossess the property unless all other reasonable attempts to resolve the position have failed” (see MCOB 13.3.2A). 

This leads us to a very important conclusion: lenders do not want to repossess houses! In this guide you will find out how to use this fact to avoid house repossession – it is never too late.

Government Help

If you’re at risk of losing your home, the UK government has stepped in and created schemes to give a helping hand. 

It can be complicated to find what scheme you’re entitled to based on your region so in this section we break it down for you.

Examples of schemes include Support for Mortgage Interest, Home Owner’s Support Fund and Mortgage to Rent.

What is the Coronavirus Job Retention Scheme?

The coronavirus job retention scheme was introduced in response to the pandemic which started in March 2020.

Many business lost all their income due to the lockdown and so the government stepped in to support them. They offered to pay 80% of the business worker’s normal wages in exchange for the employer keeping them on the books until the lockdown was released.

The intention was to save as many jobs as possible but, unfortunately, the scheme was due to end on October 31st, 2020. Knowing this, many employers had to plan ahead and began letting go of staff back in September. This led to a surge of benefits applications, the likes of which the country had never seen.

In October, the government then released a statement saying that they are extending the scheme to December. This is excellent news for those who remain employed, but, those who have been made redundant will miss out. Thankfully, the FCA has realised how difficult this time is for homeowners and has banned all repossessions until 31st January 2020

But, homeowners still need to get back on their feet. That’s why we’ve detailed the other support available for you below.

What is Support for Mortgage Interest?

If you’re a resident in England, Scotland, Northern Ireland or Wales, the government may offer you Support for Mortgage Interest. This is a loan paid directly to your lender for mortgage interest on the first £200,000 (first £100,000 if you’re receiving pension credit or started claiming benefits before 2009). Claiming any of the below means you’re entitled to Support for Mortgage Interest:

  • Income Support
  • Income-based Jobseeker’s Allowance (JSA)
  • Income-related Employment and Support Allowance (ESA)
  • Universal Credit
  • Pension Credit.
You may still qualify if you aren’t claiming any of the above, you can check your eligibility on the scheme’s website here. If you’re not eligible for this and you live in England or Northern Ireland, skip to I’m Already In Trouble.
 
To give an example of how the payment works, if you’re in the higher limit tax group and your mortgage is paid with interest only and has £190,000 left, the government will pay your entire mortgage payment every month. The biggest benefit to this is that your house is safe from lender repossession. You also get time to get back on your feet again as you do not need to repay the government until the house is sold unless you choose to.
 
Support for people searching how many months of mortgage arrears until repossession?

Government Support for people searching how many months of mortgage arrears until repossession? Number 2.

Are There Any Disadvantages to Support for Mortgage Interest?

There are a few things to consider when you’re taking out the government’s Support for Mortgage Interest scheme.

  1. Any interest you have above the current standard rate of 2.61% (changes with Bank of England rate – correct as of Mar 2021) is not covered.
  2. This money given by the government to support you charges interest at 0.9% (reduced from 1.3%) until paid off. You can choose to pay back the government early or wait until the house is sold.
  3. The minimum time to claim is 9 months of Universal Credit or 39 weeks for other benefits except pension credit.
  4. Not eligible if you own more than £16,000 in savings.
  5. If you stop receiving benefits by returning to work then the payments will be discontinued. Subsequently, you can convert to the Mortgage Interest Run On for 4 weeks to cover the transition.

Are There Any Other Support Schemes Available?

You may be in luck if you’re a Scotland or Wales resident as there are more support schemes available. Unfortunately, as a Northern Ireland or England resident, Support for Mortgage Interest is your only option: skip ahead for help

I Live in Scotland, What Can I Claim?

Other than Support for Mortgage Interest, you can claim from the government’s Home Owner’s Support Fund.

The Home Owner’s Support Fund is made up of Mortgage to Rent, End of Term Cases Pilot and Mortgage to Shared Equity.

Mortgage to Rent

Mortgage to Rent is when a social landlord, like a local council or housing association, buys your house. This pays off all the remaining debt and they rent the house back to you as a tenant. For this, you need to have tried other things first by having spoken to your lender. Generally, if your lender won’t lower your payments, you haven’t been able to pay your mortgage for more than 3 months and the UK government schemes haven’t/won’t help then you can qualify for this. One of the problems with Mortgage to Rent is that you won’t own your own home anymore. Also, you’ll only keep £11,360 cash from the buyer if you’re under 60 or £17,040 if you’re over 60. That is regardless of how much your new landlord paid to the lender.

End of Term Cases Pilot

End of Term Cases Pilot is for when an interest only mortgage ends and you cannot pay the lender’s balance. Then, a social landlord pays off the lender’s balance to buy the house and  rent it back to you. To be eligible you must have tried to negotiate with the lender and cannot be helped from the UK schemes.

Mortgage to Shared Equity

Mortgage to Shared Equity is where the Scottish government buys up to 30% of your home. You then remain as the owner with a lower monthly mortgage cost. This does have some additional requirements compared to Mortgage to rent. You must own at least 20% of the home, have a capital repayment mortgage and have a habitable home without restrictions on sale. You can find more information here.

I Live in Wales, What Can I Claim?

In Wales, area has a different offering so it is important to check with your local authority or housing association. Generally, however, they offer you mortgage rescue schemes similar to those available in Scotland. These include where a social landlord buys your house and rents it back to you or where the government buys a portion of your home to allow you to save money on your mortgage repayments. When applying, priority is given if your lender is intending to repossess your home so applying early here could be worthwhile.

If you’d like to speak to one of Shelter Cymru’s housing advisers with any questions, you can contact them here.

I'm already in trouble

If you’re over your lender’s limit of how many months of mortgage arrears before repossession, they may have started legal action to repossess your home.

The good news is that you’re not alone. Furthermore, with the information below, it does not matter what stage of the repossession you’re at – you can always avoid repossession.

If you’ve already been served a repossession notice and need to sell your house quickly for cash, get a quote now.

I Am Passed How Many Months of Mortgage Arrears Before Repossession, What Should I do?

The first thing to note is that you can always avoid repossession, no matter how far into the process you are – you just need the right information and help.

Depending on what stage you’re at, you have a few different options.

1) Talk to your lender

Firstly, the most important thing is for you to talk to your lender. They cannot legally repossess your house until all reasonable attempts at resolving the problem have failed. In other words, If you’re still making them offers they are much less likely to repossess.

2) Get a Payment Holiday

Secondly, your lender will be able to arrange a payment holiday for you if you apply soon. That means for a certain period you can go without paying your lender anything at all. During the COVID-19 pandemic, lenders are allowing a payment holiday of up to 6 month. The deadline to apply for this has been extended to 31st March 2021. This will not negatively impact your credit rating.

However, there does not need to be a national emergency for them to allow this. This approach puts you on much better terms than missing payments without informing them.

3) Apply to The Court

Thirdly, it is extremely important for you to record all conversations with your lender, even phone calls. This is because there may be a point when you are promised one thing but another happens. In that case, you have grounds to apply to the court to overturn a decision by the lender using this form.

Is There Any Way the Lender Will Allow Me to Pay Less on My Mortgage?

There are 3 ways that your bank can arrange a reduction on your monthly payments. 

1) Extend Mortgage Term

The first way is extending the mortgage term allowing you to take longer to pay it back, reducing monthly payments. For example, rather than a 25 year term you would extend to 30 years. For a £200,000 mortgage at 2.5% interest, this would take off as much as £150/month from the repayments.

2) Fix Your Payments

The second option is fixing your payments to your lender. When you took out your mortgage you were likely given a great deal on the interest rate to begin with. Offering this helps the lender to gain new customers like yourself on attractive terms. 

After that initial deal expires (usually 2 years), your lender automatically switches you to their “standard variable rate”. Your lender can set this interest as high as they like making it more expensive for you. Usually, this helps them to pay for that cheaper initial rate that they had you on. If you contact them, you can fix your payments on a lower interest rate which can significantly cut your costs.

3) Switch to Interest Only

The third way of reducing your monthly mortgage payments is by switching to an interest only repayment plan. This means that rather than paying back part of the original loan that was given, you pay back only the interest from that loan. For example, on a £200,000 mortgage at 2.5% interest, instead of paying £897 per month you pay £417 per month. It is important to know that you pay much more over the whole mortgage period. Also, at the end you will have to pay back your lender the full balance of the mortgage.

I Am Still Past Their Limit of How Many Months of Mortgage Arrears Before Repossession, Is There Anything Else I Can Do?

If your repayments are as low as they can be and you’re still struggling to stay up to date, you should consider selling your house. Although moving is not ideal, it will release some money for you until you get back on your feet. There are a few ways you can do this.

Sell Your House on The Retail Market

If you have a lot of time to wait then selling your house on the retail market will give you the best price. To get started, find  high street estate agents in your area and compare prices to find the best deal for your sale. If you need something faster, there are other options available to you.

Use a House Buying Company

Another valid option is to sell the house fast for cash to a specialised company who can complete quickly. When a customer tells us that they need to “sell my house in 30 days“, we know this is the choice for them.

The offer is lower than your house’s retail value, but there are no estate agent fees, bills or mortgage payments whilst waiting for completion. Overall, this means you can save much more money compared to a retail sale. To get a quote now, fill in our simple form here.

Sale and Rent Back Schemes

Another option to be aware of is the sale and rent back scheme. Some companies offer to buy your house and rent it back to you. If you’re desperate not to move house and want to sell, this can sound like a good option. The issue is that the rent they will charge you is more expensive than the already unaffordable mortgage was. Also, sale and rent back schemes are regulated by the Financial Conduct Authority. As such, all companies offering this must declare they are regulated and if not they are breaking the law.

Is There Any Way I Can Make Income From My House?

If you’d like to make extra money to help pay the bills, taking in a lodger can be a good idea. Always check with your lender before doing this as most lenders need specific permission. To get this permission called ‘consent to let’ most lenders increase your interest rate – do not worry about this. The income generated will more than cover this interest rate increase. 

You can find people who would like to rent a room in your home through a short term holiday host style (Airbnb or Booking.com) or a longer term permanent option (Spareroom). For this option, your home must be decorated to a high standard. Therefore, for design ideas, see our guide: Dressing a House to Sell.

By renting a room, you’ll also qualify for the government’s relatively new Rent a Room scheme. This gives you certain rights and responsibilities, including £7,500 of tax free income.

Always perform background checks on the tenant including credit and landlord referencing to keep yourself safe.

I'm Not Comfortable Being in the Same House as Someone I Don't Know, Can I Still Make Income From My Home?

Some people dislike the idea of living with someone they do not know and prefer their own privacy. If this is you, renting your whole home to a tenant could be a good option. Check with your mortgage lender for permission to do this as you will need ‘consent to let’. 

Becoming a landlord can be daunting, but it’s a very effective way to make income once you’re there. Here’s an easy step-by-step beginner’s guide to make the transition simple.

Preparation:

1) Research – check how much properties similar to yours are renting for in the area and how easy it is to find tenants. You can check local rent prices here. Additionally, the closer you are to a major city, the easier finding tenants tends to be.

2) Calculations – renting can be profitable but not right at the beginning. Hence you should always check what your costs are and compare them to the rent you found on step 1 to see if they are covered. Costs include insurance, mortgage, estate agency fees if you’re using them, income tax on profit and complying with regulations.

3) If you have a mortgage, once you know renting will be profitable, you can apply for consent to let from your lender.

4) Always have the correct insurance. Contact your insurance company and inform them of your intention to let the property. As a result they may change you to Landlord’s Insurance which will carry a small premium. This will make sure that you get the correct payout if you need to claim in the future.

Action:

1) Give the property some love with re-decoration and repair. This will therefore make sure that finding a tenant for the right price is as simple as it can be.

2) Get rid of any valuable personal items! If any family heirlooms are broken by tenants, there will be no way to replace them.

3) Find your tenants. At the beginning you could do this yourself through this website or similar websites to make the most money especially whilst you’re struggling with your income. Once you’re stable, an agent can take care of this for you giving a more hands off approach. For this they typically charge 10-20% of rental income so make sure to shop around for the best deal.

4) After finding a tenant you should subsequently background and reference check them here.

Even if they pass referencing, always meet them and go with your gut feeling. They may look great on paper while there are some red flags when meeting them. Ask them questions like why they want to move and what happened with their old tenancies.

5) Plan ahead. Always be one step ahead by checking with the tenant regularly that they’re happy. As a result you’d expect plenty of notice back if they plan to move out in the future, giving you time to replace them and avoid the dreaded vacant house!

6) Give yourself a pat on the back. Becoming a landlord is a big step that you’ve managed to achieve and will hopefully reward you for a long time to come.

About The author

This article was written by Dr Sermed Mezher MbChB (Hons) MRes, experienced property investor, published author in Global Paediatric Health and The Journal of Medical Ethics, and medical doctor.

Sermed has a special interest in educating people on how to improve their situation. He believes that physical and financial health are intimately linked.

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