Mortgage arrears
If you have missed your mortgage repayments for any number of months and have payments that are overdue, then you are 'in arrears'. For example, if your due date is the first of each month and you have missed the last three months, this would mean that you are now ‘three months in arrears’.
Why do mortgage arrears occur?
Market factors, evolving lender practices, unemployment rates and economic policies have all influenced mortgage arrears and repossession statistics in the UK historically.
In almost all cases arrears and repossession are never the fault of the home owner and tracing the steps back often proves this. What started out as a missed mortgage payment because you were waiting for a payment yourself, were in hospital, suffering temporarily reduced earnings or redundancy, navigating divorce or separation, loaned money to help loved ones only to see it never returned, or interest rates simply moved against you, can quite easily spiral into multiple overdue payments, repossession, eviction and ultimately increased long-term debt.
Through collecting and analysing data from various sources, such as the government’s office of national statistics (ONS), council for mortgage lenders (CML) and UK finance, it is possible to determine arrears and repossession trends in the UK. Plotting mortgage arrears (greater than 2.5% of the mortgage balance outstanding) in recent history against unemployment in the UK, there is a clear link between higher rates of unemployment and a higher amount of mortgage arrears. Specifically, whilst there were 458,000 households with mortgage arrears in 2014, when the UK unemployment rate was 6.2%, there were 313,410 in 2019, when UK employment was 3.8% of the population. The correlation can quite clearly be seen in the analysis below.
​
UK Mortgage arrears: 2014-2019
​
How common are arrears?
UK mortgage arrears (greater than 2.5% of the mortgage balance outstanding) for the most recent period available, December 2019, represented 1.06% of the total number of UK mortgages. Whilst this may seem a small percentage, it represents 313,410 individual households, therefore if you are suffering from mortgage arrears do not feel as if you are alone. Many others are in a similar situation to you and it can be resolved.
​
​
Do mortgage arrears affect credit?
Yes, arrears are likely to be registered on your credit file and negatively impact your credit rating.
Some lenders will have strict regulations in place where they will decline a great applicant, simply because of a recent missed payment. Going on to then appeal the decision, as the missed payment was a simple error, can be further frustrating and time-consuming. Delays in your mortgage offer can even result in estate agents accepting a different offer on a property.
If you require a mortgage after mortgage arrears or late payments, it is recommended you speak to an advisor. Going to a lender selected at random can severely disrupt your chances of securing a mortgage. Lenders have varying standards of strictness, protocols and criteria, therefore it is imperative to go to the right lender that suits your credit profile and the amount of borrowing you have in mind.
In all cases for mortgages, the higher deposit you have, the better. This is because lenders tend to offer better rates on mortgages where you have a lower level of borrowing, termed LTV (Loan to Value). Approvals are less difficult when large deposits are involved, as the lender believes it is taking on less risk. This becomes further evident if you have missed payments and have a lower than average credit score, either as a result of mortgage arrears or otherwise. For example, if you have a 10% deposit and missed payments, as opposed to a 40% deposit and missed payments, you are more likely to be approved having a 40% deposit.
When your credit score is not quite high enough for lender approval, you may be offered a lower mortgage amount. For example, you might have applied for an 85% LTV but the lender may only offer you a mortgage at 70% LTV. This shows that the lender is willing to lend to you, but at their specific LTV and not what you requested, wanted or needed. This does not necessarily mean every lender will do the same but it is certain that your ability to borrow will be negatively impacted.
How can I check whether my arrears impacted my credit score?
Very simply - check your credit report. If you have had mortgage arrears, late payments or any other type of financial issue that may be registered on your credit report, it is vital to see this information so that you are aware how lenders will perceive you. It is a common myth that searching your credit score will leave a ‘footprint’ on your file, almost the same as if you are actually applying for credit, and degrade your credit score but this is simply not true. A small footprint will be left if a search is carried out on your credit file but it will not negatively impact your credit score and the footprint will not be comparative to that if an actual application for credit is made.
When you check your credit file, in addition to being able to see your credit score you will also be able to see the exact dates and amounts of charges (if any) along with how you have managed your credit. Your credit report is one of the primary pieces of information that a lenders will look at when you apply for a mortgage, so it is worth getting a head start and clearing up any errors that may be in your credit file. Our useful links page sets out the primary agencies that offer you free access to your credit file.
How long do mortgage arrears stay on my credit file?
Six years. However, this does not necessarily mean you will be refused a mortgage for the same period. Lenders have different criterion, with some having longer historical periods of assessment and others having shorter periods, such as less than three years. In the case of the latter, if your arrears were four, five or six years ago there is a chance these will not be taken into consideration by a lender and impact your mortgage offer. Your mortgage lender will be able to advise of its policies prior to you lodging a formal application.
​
​
What happens if I leave my arrears unaddressed?
If you have missed multiple mortgage payments over a number of months, you are at risk of your home being repossessed by your lender. Please refer to our repossession process guide for detail on each step following your lender contacting you to notify you of your arrears.
Repossessions are commonplace in the UK but can be incredibly damaging to your finances, both in the short and long term, as we have explained in our how to stop repossession, eviction and bankruptcy advice pages.
Repossessions are intrinsically linked to the health of the UK economy, as set out in our negative equity guide, but have decreased following the 2008 financial crisis following lower levels of unemployment through to December 2019. Analysing both together shows a direct correlation between the level of repossessions and unemployment in the UK, with repossession peaks both in 1991 and 2009 following substantial financial recessions in both periods.
​
UK Property repossessions: 1988-2019
​
In summary, your lender will sell your home after repossession, often at auction at a substantial discount to its market value. You will still be liable to pay interest on your mortgage until it is sold, which may take many months, as well as other ongoing obligations such as insurance, council tax, repairs, maintenance, and water, gas and electricity bills. You will also be liable for the auctioneer’s fees, estate agent fees incurred in advertising the auction, and all legal and other costs associated with the sale.
After the sale, your lender will keep the money it is owed and will pay you anything that is left over. If your home is sold at a price that is not enough to cover your mortgage debt, you will still be liable to your lender for this remaining debt. If you are unable to pay this shortfall, you may have to declare bankruptcy, in which case your possessions and any other assets will be sold, and your income diverted to pay your shortfall to your lender.
​
​
What help can I get?
Our practical advice pages guide you through what you should do each step of the way if you are suffering from mortgage arrears.
First and foremost, make it your intention to avoid the situation deteriorating any further. Put simply, do your absolute best to stop your mortgage arrears from increasing any more and ensure you are meeting all of your regular mortgage payments as they fall due. This can be easier said than done if you do not have a handle on your finances, therefore your first step should be to understand your finances by conducting a financial self-assessment. Don’t worry, this need not be complicated or daunting and our guide walks you through this and includes a free-to-use template for you to complete.
Secondly, depending on the results of your financial assessment you may be in a position where you would benefit from increasing the amount of money you have available to put towards your mortgage payments each month. Your options here would be to either increase your income or reduce your expenses. Please refer to our money saving tips for help and advice on how to do this as quickly and practically as possible.
Thirdly, if you are in arrears it is absolutely essential you communicate with your lender. We appreciate these times will be stressful and burying your head in the sand can seem like the easiest option, but without communication your lender can argue that no negotiations are taking place and immediately commence repossession. Writing formally to your lender, typically a large, powerful bank, can seem daunting but it is important to stay calm and approach this methodically. We have set out practical advice specifically on writing to your lender to negotiate to help you with this step.
Lastly, if matters progress to the point where your lender is not satisfied with your proposals, it will start court action to repossess your home. It is imperative you do your upmost to stop repossession of your home, to stop your lender selling it for undervalue and minimising your chances of paying off the mortgage debt you owe on the house. For the reasons set out above it can be highly beneficial to sell your house on your terms before your lender takes repossession of your home and this is an option you should seriously consider.
By selling your home privately to us, for example, will allow you to receive a higher price compared to your lender selling it at an auction and you can move out on your terms. The sale can be completed as quickly or slowly as would like, enabling your arrears and mortgage to be paid off and repossession stopped. With us, we pay all of your selling fees and you decide when you move, as we always work to a timeframe that suits you. To make your move easier, we are also happy for you to stay in your house for an agreed period after the sale has completed to help you focus on your next move and plan ahead.
In summary, no fees, increased certainty, flexible timescales, peace of mind and a safer, speedier sale are a few of the benefits of selling to us to help manage your arrears and to avoid repossession.
Regardless of your situation, we are here to help and will try our best to find a solution that works best for you. If you are in arrears and are facing the prospect losing your home, please get in touch and we would be more than happy to discuss options on what you can do and how we can help.
​
​