Problems paying your mortgage

Why mortgage problems happen

There can be many reasons why people struggle to pay their mortgage. For some people it’s down to a lack of planning, but for others it could be a result of unexpected life events, such as redundancy, health or family problems. 

It is becoming increasingly common for people to still have mortgage debt when they retire, and not have enough income to cover repayments.

Interest-only mortgages

With interest-only mortgages, borrowers just repay the interest on the mortgage. Monthly repayments are lower than on capital repayment mortgages. But, at the end of the mortgage term, you have to pay off the full loan. You’re expected to have a plan in place to clear the debt using savings, investments or other assets.

Many older people bought these mortgages along with endowment policies, which haven’t performed as well as expected since the 2008 financial crash. They are now finding it difficult to pay off the mortgage at the end of the deal because they don’t have enough money set aside.

What you can do

If you’re having problems, you should talk to your mortgage lender first. You may be able to change your mortgage terms or change the type of mortgage that you have. Although you may be restricted by the mortgages available to you, some lenders are becoming more flexible and extending the upper age limit for borrowing. Repossession should be the last option that your lender considers.

If you have an interest-only mortgage, you’re responsible for putting in place a repayment plan. You should review it regularly and check with your lender to make sure your plan is sound. MoneyHelper has a mortgage calculator which can help you work out what you’ll have to pay.

Check your cover if you took out mortgage protection insurance. You might be able to claim if your income has fallen because of illness, for example.

If you want to know about regulated financial products, you’ll need to speak to an independent financial adviser. You can find one through the Society of Later Life Advisers or Unbiased.

Whatever your situation, don’t ignore the problem – it won’t go away. It’s best to take action to deal with it as soon as possible. Citizens Advice has more information and can advise you if you’re having mortgage problems.

Other options

You could consider:

• renting out a room in your home. You may need to get permission from your lender, and if you are getting any benefits you must tell the Department for Work and Pensions and HM Revenue and Customs about any extra income you get
• renting out your home if you have somewhere else to live. You’d have responsibilities as a landlord and your mortgage interest may increase
• selling your home. You’ll need permission from your lender if your house is worth less than amount left to pay (known as negative equity). Be aware that if you sell your house and then approach your local council for help with housing, they may decide that you intentionally made yourself homeless and may not have to help you. You should check with your local council first. Or you can call our Helpline and arrange to speak to an adviser
• equity release – but it’s essential to get legal and financial advice before you do, as it’s not suitable for everyone.

Don’t just hand back the keys to your lender – you’ll still be legally responsible for the debt and they may sell the property at a lower price.

Help with costs

Make sure you’re claiming all the benefits you’re entitled to. You can use our benefits calculator to work out what you could get or call our Helpline and arrange to speak to an adviser.

You may be able to claim help with housing costs. If you’re on certain benefits, you may be able to get a Support for Mortgage Interest (SMI) loan paid by the Department for Work and Pensions, which can help to pay the interest on your mortgage. Visit MoneyHelper for more information.

If you’re struggling to regain control of your finances, you can get help with debt.