Negotiating with lenders

This content applies to England only.

Housing laws vary between England and Scotland. Get advice relating to Scotland

If you have difficulty paying your mortgage or if mortgage arrears are mounting up it's important that you speak to your lender as soon as possible.

Talk to your lender about mortgage arrears and payment problems

Negotiating with lenders over missed payments or mortgage arrears may seem complicated and stressful, but it is important to try to come to an arrangement with your lender if you are in mortgage arrears or likely to be in mortgage arrears in the future.

Explain to your lender that you are going to get specialist advice on your options. This will show them that you are taking the problem seriously and that you want to put things right.

An adviser can help you to get the best possible outcome. You can:

use our directory to find face-to-face advice services in your area
visit the National Debtline website, or
call Community Legal Advice (formerly the legal aid board) on 0845 345 4 345.

Don't be put off because you think your situation is hopeless. There is often a solution.

Negotiating over mortgage arrears charges

Many lenders charge monthly penalty fees for late payments. these will be added to the total amount that you owe. However, from 30 June 2010, lenders who are regulated by the Financial Services Authority (FSA) must:

not apply a monthly arrears charge if you have already made an agreement to repay the arrears
put all payments that you make towards clearing missed monthly payments, rather than towards penalty fees
record all telephone calls they have with you about your arrears
keep records for three years
only use repossession as a last resort.

You can check whether your lender is regulated by using the FSA register.

What to do about mortgage arrears and missed payments

Most lenders will expect you to come up with your own plans for paying off your mortgage, rather than making suggestions as to what you should do. You need to show that you will be able to pay off any mortgage arrears you have over a reasonable period of time and keep up with future payments until your mortgage is completely repaid.

It is worth taking the following steps to help you make your decision when you negotiate with your lender about mortgage arrears:

produce a detailed household budget
work out whether it would be possible to increase your income and/or reduce your spending – try to make these calculations as precise as possible
find out whether making changes to your mortgage might make it more affordable
do some online research to compare different mortgages
get help – use our directory to find an adviser in your area.

Making a proposal to manage mortgage arrears

You can either write to your lender or make an appointment to discuss your situation in person. Your proposal should:

give details of your mortgage and set out the background of the problem
explain any changes in circumstances which led to the arrears (eg losing a job, a death in the household, having a baby, unexpected expenses)
include a detailed statement of your income, spending and debts - you may find a budget calculator helpful for this
set out the changes that you propose to make, and how these will enable you to pay your mortgage and any arrears.

Explain any plans you have to increase your income and/or reduce your spending – try to make calculations as precise as possible, and if relevant point out that you have a previously good record in paying the mortgage. You should set out any changes you would like to make to the mortgage and how the new arrangements will affect the future payments. When doing so it is important to take the following into account:

the extent to which you can control mortgage arrears
your ability to make regular payments
the amount of equity you have in the property.

You should ask for a better loan rate, and if your lender has already threatened to repossess your home, ask for more time. Suggest that your proposals could be allowed on a trial basis, to be reviewed after a certain amount of time (see below).

Your lender will consider your proposals and decide whether to accept them. You may have to negotiate further.

If you switch to a different mortgage, particularly if it is with another lender, bear in mind that you may also have to pay a redemption penalty to your old lender, which will increase your debt. However, it may be possible to add any new fees or redemption penalties onto your mortgage and pay them off over the rest of your mortgage term.

Suggesting a review

If you are certain that the proposals you have made are realistic, you could suggest to your lender that they look again at your case after a specified time to see if you have been meeting any proposals which they have agreed to. This will give you the chance to prove to them that you are able to meet the revised repayments and manage your mortgage arrears.

If the lender rejects the proposals

If you do not come to an arrangement with the lender, and the lender rejects any proposals you make, you should get advice about what to do. You might be able to do one of the following things:

sell the property and move somewhere more affordable
go to court to argue your case. Courts have lots of options in mortgage arrears repossession cases and will normally only order you to leave if all other options have been exhausted. If court action is inevitable, you must prepare and attend on the day
if you are a shared owner with a housing association, you may be able to sell a share in the property back to them (this is also known as staircasing down).

Sticking to the agreement

It's very important to stick to any agreement you make to manage mortgage arrears with your mortgage lender. If you don't it will probably be more difficult to negotiate with them in future.

If you have already negotiated an agreement to manage mortgage arrears but are having problems sticking to it, get advice immediately. An adviser may be able to help you to persuade your lender to negotiate further changes to what has been agreed.