Struggling to meet your mortgage payments?

The mortgage market has changed significantly over the past few months and one of the most affected areas is the prospects for homeowners with mortgage arrears.

Bearing in mind that the Council of Mortgage Lenders (CML) advise that mortgage arrears are rising, it may be appropriate to look at the reasons for this, the consequences and how to avoid being affected yourself.

What are the potential causes for mortgage arrears?

We are currently experiencing a convergence of a unique set of circumstances which, with hindsight, could perhaps have been foreseen.

It is well known that there has been rapid house price inflation over the past few years and to keep pace with this borrowers have had to take larger mortgages.

Lenders have therefore offered a range of products with higher lending multiples or self-certification of income to maintain their market share.

Aligned with this, a high percentage of these loans were taken on a fixed rate basis to allow the borrower to budget for their payments in the medium term, usually 2 or 3 years.

At the end of this initial term, these loans are reverting to the lenders Standard Variable Rate (SVR) at a time where the availability of credit has been severely reduced by the 'Credit Crunch' and interest rates have risen.

How will this affect borrowers in these circumstances?

Many fixed rate borrowers therefore face a large increase to their payments and, if they stretched themselves in the first place to get the mortgage, these may not be affordable.

If you then add to this that the average credit card or unsecured debt per household has also risen the result is a set of creditors all competing for payments.

As the unsecured debt companies tend to place more pressure on a borrower in arrears it tends to be the larger mortgage payment that is dropped first with the intention that this will be made up later.

Unfortunately, once one payment has been missed it is all to easy to miss another and very shortly you find yourself in serious mortgage arrears.

In the past this could often have been dealt with by consolidating the debts, using equity from the property to support a remortgage or secured loan.

Unfortunately, in a market totally adverse to risk there are now very few products available.

The very worst scenario would be that the lender seeks recovery of the loan through the repossession and forced sale of the property, evicting the customer as they do so.

What can you do to avoid this?

Firstly, try not to let yourself get into this position in the first place! If you have a fixed rate loan then plan ahead and seek advice from a regulated independent mortgage broker, there are still products offering cheaper rates than the lenders current SVRs.

If you are struggling to meet your credit repayments (or feel you will do so in the future) then review your total household spending...

“Now is the time to reduce your outgoings for non-essentials!”

If you do find yourself in difficulty servicing your loans it would be wise for you to visit a debt counsellor or the Citizens Advice Bureau.

A professional credit management programme will often ensure that your mortgage payments are met whilst other creditors are told to wait for their money, removing pressure and leaving refinancing options available for the future.

So, the message is clear. Don't leave it until you are in arrears to seek advice, many of those losing their properties simply put their head in the sand and hoped for the best.

Note - The content of this article is not meant to represent advice to individuals. It is only by taking account of your personal circumstances that a professional adviser can make specific recommendations.