Mortgage arrears can be dealt with

Published on 30/01/2009 20:15

THOUSANDS of Scots are battling to avoid repossession as the number of mortgages in arrears continues to rise. By the end of September last year, some 340,000 borrowers were in arrears, according to new figures from the Financial Services Authority (FSA), 24 per cent more than in the same period in 2007. Almost 3 per cent of UK mortgages are now in arrears, said the FSA, and with unemployment numbers rising significantly, those figures are likely to be on a steep upwards curve.

The escalation of the problem is such that Citizens Advice is now dealing with more than 325 new mortgage arrears cases every day. Graeme Brown, director of Shelter Scotland, said anyone falling behind with payments on a mortgage or any other loan should speak to their lender and take advice straight away.

"Seeking advice early could be the key to avoiding a crisis if you are facing eviction or struggling to pay your mortgage. The earlier you take action, the better the chance of staying in your home. No-one with financial problems should bury their head in the sand."

The attitude of lenders towards arrears can vary significantly, with those specialising in subprime loans the least helpful. Some banks, including RBS, have introduced a six-month delay on repossession orders, but the anecdotal evidence from debt agencies is that many lenders are still too quick to act against homeowners who are behind on repayments. The cost can be exacerbated by lenders punishing borrowers for falling behind on their payments by levying a range of additional fees. These include mortgage arrears fees, a fee for the statement giving the breakdown of your arrears and solicitors' fees.

However, borrowers who contact their lender early enough may find it is willing to be flexible, particularly if they can offer solutions such as paying off a portion of the full amount. Borrowers who don't find their lender in the mood to compromise should take advice. Agencies including Money Advice Scotland and Citizens Advice provide free and independent advice that can help you find a way forward (see box for contact details).

There also some strict "Don'ts" when it comes to tackling arrears. One way out that many homeowners have had reason to regret is sale-and-rent-back schemes, not be confused with the regulated equity release sector. These unregulated "solutions", also called sell-to-let, offer to buy your home at a discount to the market value and rent it back to you for a fixed period. But many homeowners have found themselves evicted after falling behind on rental payments, which are often hiked significantly.

The rise in repossessions has received considerable political attention in the last three months, with a raft of initiatives aimed at helping those in danger of repossession. The Homeowner Mortgage Support Scheme (HMSS) allows households experiencing a sudden drop in income to defer their interest payments for up to two years. The scheme is open to those with savings of 16,000 or less and mortgages of no more than 400,000. But last week Shelter Scotland said the government was dragging its feet in publishing crucial details of the HMSS and called on it to deliver on its promises as a matter of urgency.

The Income Support for Mortgage Interest scheme (ISMI) aims to help those out of work and on income support with mortgage repayments. Following recent enhancements, the waiting period has been cut to 13 weeks and the mortgage on which ISMI is assessed is now 200,000.

In Scotland, the Home Owner's Support Fund, given a 10 million funding boost last week, is an extension of the Mortgage to Rent scheme, in which homeowners can sell to a registered landlord and become tenants. As of March it will include a shared equity element in which homeowners with at least 25 per cent equity in their property and more than three months in mortgage arrears can reduce their mortgage obligations by selling a share of their property to the Scottish Executive, with the agreement of their lender.