What happens when outgoings are greater than income?

When people apply for a mortgage to buy their dream home, they generally have every intention of repaying the monies in a timely fashion. Sometimes, life can through a curveball, which means that suddenly people have more going out than they have coming in, and they find that the mortgage slips into arrears.

While the temptation for many is to ignore the problem, that really is the last thing they should do, as there are a number of steps that can be taken to help them get back on track.

Lenders are generally very keen to help those who fall behind with their repayments; after all, it is in their interest to provide help and support in order to recover the monies owed. They have to take certain steps in trying to reach a mutual agreement with you.

Within 15 days of the arrears occurring, they must:

• Provide you with a list of all missed payments
• Confirm the total arrears due
• Confirm any charges incurred
• Confirm total mortgage outstanding
• Allow a reasonable timescale for the borrower to ‘catch up’ with the repayments
• Clarify potential future charges that could become payable if the situation is not rectified

As the borrower, dependant on the reason for the arrears, it is advisable to check any existing insurance policies to see what they cover you for. Accident, sickness and unemployment cover can provide help with the monthly mortgage repayment, if you have missed payments due to any of those reasons.

In order to provide sufficient support, lenders will usually want to go through a full income and expenditure check with you, in order to make a full and fair assessment of your needs and provide the cheapest and most individually appropriate solution.

This will allow the borrower to reflect on their outgoings, reviewing what is essential and what is not essential. Look through the direct debits on the account, and cancel out anything that is not of value. Look at items like a takeaway coffee before work; if not an essential, then it is an expense that can be cancelled, which will reduce the outgoings.

It is also advisable to shop around for certain utilities such as gas and electricity, and see if money can be saved by changing providers. When all of these small steps are combined, in some instances enough money is saved to enable the mortgage payments to resume at the correct amount.

If this does not improve the situation, lenders will generally advise the borrower to speak with a free debt counselling service, to obtain impartial advice on the next steps available.

Some of the charities would help the borrower to access certain benefits and, if eligible, show them how to obtain assistance with the mortgage interest payments from the government.

The last resort for all parties is repossession. However, if it reaches a point that the personal circumstances of the borrower are not going to change, selling the property may be another option. If the borrower chooses to move into rented or downsize property and use sale money to repay the mortgage, it avoids the additional court costs involved with a repossession.



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