With the cost of living rising, some homeowners may find themselves struggling to meet their monthly mortgage repayments. Here’s what to do if it’s happening to you.

If you’re finding you can no longer afford your mortgage repayments, there are options out there that could help you through a difficult time.

Here’s what to do if you think this might be about to happen to you.

What should I do if I think I might miss a mortgage payment?

Contact your lender as soon as possible.

Lenders will always try to work with customers who are experiencing financial difficulties.

But you’re likely to have more options if you contact your lender before you’ve missed a payment.

As soon as you think you might have a problem, get in touch with your bank or building society straight away.

How should I contact my lender?

Check your lender’s website to see how they want you to get in touch if you are experiencing financial difficulties.

Some lenders have a special helpline for people in this situation.

Most lenders will offer a variety of ways in which you can contact them in this scenario, include call hotlines, email, online chats and mobile apps.

Don’t leave contacting your lender until the last minute, as they may be experiencing a high volume of calls.

If you find yourself facing long waiting times on hotlines, try contacting your lender by email or through their website instead.

Will I lose my home?

Losing your home is most people’s worst nightmare. So, it’s good to know that repossessing a property is usually a last resort for lenders.

Instead, they will work with you to try to find a way to make your mortgage repayments affordable.

Charles Roe, Director of Mortgages at UK Finance, says:

“Lenders stand ready to help customers who may be struggling with their payments.

“It is important that anyone experiencing financial difficulty gets in touch with their lender as soon as possible to discuss the best options for them.”

What do I need when I contact my lender?

The most important things you’ll need are your mortgage details and account number, so your lender can look you up on their system.

It’s also a good idea to do a budget before you make the call, so you know exactly how much you have coming in and going out each month.

And look for any areas in which you can cut back on your expenses.

Having a clear idea of what you can afford will help you as you discuss a way forward with your lender.

Can I take a mortgage payment holiday?

During the early stages of the Covid-19 pandemic, lenders introduced a mortgage payment holiday scheme.

Under the scheme borrowers could defer their mortgage payments for up to six months.

Unfortunately, the scheme has now ended, and no new official scheme has replaced it.

But lenders are still granting mortgage payment holidays to borrowers on an individual basis.

These payment holidays are typically two to three months long.

Interest that’s not paid during this period is added to the outstanding mortgage debt.

What are my options if I can’t pay my mortgage?

There are four main options if you’re struggling to pay your mortgage.

The best option for you will depend on your individual circumstances.

1: Extend the length of your mortgage term

The mortgage term is the total period over which you repay your mortgage.

Spreading the debt out over a longer period of time will reduce your monthly payments.

If you’re struggling to afford your mortgage due to higher bills, increasing your mortgage term could be a good option.

Increasing the period over which you repay a £200,000 mortgage from 20 to 30 years would reduce your monthly repayments from £1,019 to £744.

This calculation is based on an interest rate of 2% and a repayment period of 25 years.

The advantage of this option is that you continue to repay your mortgage.

The downside is that by increasing the term, you’ll pay more in interest over the total period of your mortgage.

2: Change to an interest-only mortgage

Changing from a repayment mortgage to an interest-only one dramatically lowers your monthly paymnets.

Since you’ll only be paying the interest on your loan each month, rather than paying down the actual debt, it’s a much cheaper option in the short term.

If you’re going through a temporary fall in income, moving to an interest-only mortgage may be a good option as it will significantly reduce your monthly repayments.

For example, if you have a £200,000 mortgage, switching to an interest-only loan will cut your repayments from £854 to just £333 per month.

This calculation is based on an interest rate of 2% and a repayment period of 25 years.

But your lender is only likely to want to do this for a limited period, as you won’t be reducing the overall amount you owe.

You’ll also still need to find a way to repay your mortgage over the longer term.

3: Defer your mortgage repayments

You can defer your mortgage and interest payments for a short period of time, typically two to three months.

After this period, the payments you missed will be added to your monthly repayments until you’ve made them up.

This is often done over the course of one to two years.

4: Request a payment holiday

During a payment holiday, the interest you don’t pay during the holiday will be added to the overall amount that you owe.

A mortgage payment holiday may be a good option if you have seen a sharp drop in your income or been made redundant.

The holiday will give you breathing space of two to three months in which to get back on your feet.

But lenders are unlikely to offer you a holiday for longer than this.

They will also want to be confident that you’ll be able to resume repayments once the holiday ends.

The payments you have missed will still need to be made up at a later stage.

If I take out any of these options, will I have to pay any fees or penalties?

No, lenders understand that if you are facing financial difficulties, the last thing you need is extra fees or penalties.

As a result, you won’t face any charges to change to a plan agreed with your lender.

But you may face penalties if you miss a mortgage payment without contacting your lender.

So be sure to keep them up to date with your circumstances.

Are these options open to everyone?

Lenders want to work with you to help you avoid losing your home.

They will try to find an option that works for you even if you’ve lost your job, or have a poor credit history.

That said, they’ll want to feel confident that you can keep up with your repayments over the longer term.

They won’t want you to get so far behind with your payments that you can’t catch up with them.

Will it impact my credit score?

Unfortunately, taking out a mortgage payment holiday may impact your credit score.

This is nothing to do with mortgage lenders. Instead, credit reference agencies will spot that you have not made a monthly repayment that you were scheduled to make.

This may make it harder to borrow money over the short term. But there are steps you can take to improve your credit score once you get your finances back on track.

Key takeaways

  • First things first, if you’re finding it hard to pay your mortgage, contact your lender. Don’t be afraid, lenders will work with you to find a solution
  • Options may include a mortgage holiday, changing to an interest-only loan, or increasing your mortgage term
  • If you think you might miss a payment, contact your lender as soon as possible before it happens, as they’ll be in a better position to help