10 ways to deal with worries about your mortagage

10 ways to deal with worries about mortgages

Mortgage rates are on the rise again – and, as banks struggle to come to terms with turmoil in the global money markets, home owners are struggling to keep pace with the growing cost of their mortgages.

According to a recent study, more than 1 million people are resorting to using high interest credit cards to cover their mortgage payments leaving them at risk of eviction or repossession. Repossessions rose 65 per cent during 2006, according to the Council of Mortgage Lenders, and are expected to escalate as people come to terms with household debt which is now running at 150 per cent of average annual income.

But losing your home isn’t inevitable, even if you’re having trouble making your mortgage repayments. Here are some ideas that could help you to keep the roof over your head.

1. Speak to your mortgage lender – they will do their best to help. For example, if you have a repayment mortgage, you could switch to an interest-only plan. If you are already repaying only interest, then you could arrange a mortgage holiday. If your own lender can’t help, you could remortgage – but remember that you may have to pay penalties and fees for settling your mortgage early and could rack up larger debts in the long term.

2. Get advice from a specialist charity or organisation. Try Citizens Advice – you’ll find a local office in the phone book or at Citizens Advice – or the Consumer Credit Counselling Service (CCCS). There is no need to pay expensive private agencies – these services are free.

3. Check your credit report with CreditExpert. This is the personal history of the credit you have taken out, from your mortgage to catalogue accounts. It will give you a snapshot of how much you owe and how well you are coping. Lenders look at your credit report when they decide whether to make you an offer and what terms to set, so it’s crucial that it’s up to date and accurately reflects your position. A repossession will stay on your credit report for six years – the same length of time as an Individual Voluntary Arrangement or bankruptcy – and could make it difficult for you to get credit in future or result in you paying higher interest. See your credit report for free here.

4. Work out a budget. Start with what you are spending now and see what you can trim – remember essential bills, such as utilities, council tax, insurance and food. You’ll find a budget calculator on the website of the FSA, the UK’s financial watchdog, which also provides a mortgage calculator – go to FSA's Money Made Clear website. Or look at the Mortgage Calculator on our Money Tools page.

5. Pay what you can. Even if you can’t manage the full amount, you should pay as much as possible. This shows your lender that you are making an effort and may increase your chances of negotiating an affordable deal.

6. Investigate financial help – for example, you may have mortgage protection insurance or be able to claim benefits.

7. Supplement your income. If you have a spare room, you could take in a lodger – up to £4,250 a year is tax-free. If you have a garage or parking space, that could also generate extra cash. Other options include taking a second job or looking for a better-paid job.

8. Look at taking out a new loan to pay your debts. Shop around and you could find a deal that works out cheaper than paying off a series of individual bills – your credit report will help you to see where you might make savings. But be careful – if it is secured against your home, you could be putting it at even greater risk if you miss any repayments.

9. Don’t hand back the keys. If you’re desperate, it’s far better to sell your home yourself – at least you’ll still have somewhere to live while you market it. If you give the keys back to your lender, you will be responsible for the mortgage until it’s sold and you could have to pay any shortfall if the lender sells it for less than the value of the mortgage.

10. Be wary of sell-and-rent-back schemes. Specialist companies offer to buy your home very quickly, usually within weeks, and rent it back to you for a set period of at least six months. The schemes may be called mortgage rescue, rent-back, or sell-to-let – but they are not regulated by the FSA, so you have no come-back if anything goes wrong. You will normally get less than the market value for your property and could also be evicted if you fall behind with your rent.

• Your credit report is the first place to look when you’re worried about your borrowings – it gives you an instant snapshot of how well you are managing your finances. You can see your Experian credit report as often as you like with a free trial of CreditExpert, the online credit monitoring and identity fraud protection service.

More about mortgages