Mortgage arrears

Mortgage arrears refer to the situation where a borrower falls behind on their mortgage repayments, resulting in unpaid amounts owed to the lender. When a borrower fails to make timely mortgage payments as agreed in the loan agreement, it can lead to a range of consequences and a specific process that lenders typically follow. Here’s an overview:

1. Late Payment: Initially, when a borrower misses a mortgage payment, it is considered a late payment. Lenders usually have a grace period during which a payment can be made without severe consequences, but it’s important to check the specific terms of the mortgage agreement.
2. Arrears Notice: If the borrower continues to miss payments, the lender will send an arrears notice. This notice outlines the outstanding amount owed and requests the borrower to rectify the arrears within a specified timeframe, often 15 to 30 days.
3. Communication and Support: Lenders will usually attempt to contact the borrower to discuss the arrears and understand the reasons for the payment difficulties. It is essential for borrowers to maintain open communication with their lender during this stage, as some lenders may offer alternative payment arrangements or financial counseling to help resolve the arrears.
4. Arrears Management: If the borrower does not address the arrears or fails to reach an agreement with the lender, the lender may escalate the matter to their arrears management department. This department specializes in handling borrowers in financial difficulty and may explore various options to resolve the situation, such as restructuring the mortgage, extending the loan term, or deferring payments.
5. Legal Action: If all attempts to resolve the arrears fail, the lender may proceed with legal action. This typically involves applying to the court for a possession order, which gives the lender the right to repossess the property if the borrower fails to meet the agreed terms or make satisfactory repayment arrangements.
6. Repossession: In cases where the borrower continues to be unable to meet the mortgage obligations or fails to comply with a court order, the lender may proceed with repossession. This means taking ownership of the property and selling it to recover the outstanding debt.

It’s important to note that each lender may have slightly different procedures and timelines for managing arrears, and local laws and regulations may also impact the process. It is crucial for borrowers facing mortgage arrears to seek professional advice, such as consulting with a financial advisor or contacting organizations like Citizens Advice or Shelter, who can provide guidance and support in dealing with the situation.