If you can't keep up your mortgage repayments, forget about government help, because it's almost non-existent! We suggest some helpful alternatives for homeowners.
When you take out a mortgage to buy your first home, you assume a debt burden which typically lasts for twenty-five years or more.
In effect, getting a home loan is a vote of confidence in your future: you expect to be able to meet all three hundred or so monthly repayments and, at the end of the term, you finally own your home. For millions of us, owning a mortgage-free home is our main financial ambition (other than winning the Lotto, which is nothing more than a pipe dream!).
However, for a sizeable minority of borrowers, this financial journey is far from smooth. This "wealth warning" isn't there just for fun! "Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it."
Of course, until you've paid off your entire home loan, your mortgage lender has a secured interest in your property. Hence, if you breach the contract between you, your lender could seize your home. For example, if you miss a few too many mortgage repayments, your lender will start court action to confiscate your house, and then sell it to recover the outstanding debt. This is known as "repossession" - and it's on the rise. Indeed, after hitting a recent low of 6,230 in 2004, mortgage repossessions are expected to increase by at least half this year. Oh dear!
So, if you have long-term repayment problems, what can you do to avoid losing your home? The first thing to be clear on is this: you cannot - and should not - rely on the State to help you!
Income Support for Mortgage Interest (ISMI)
ISMI is paid to homeowners who, for various reasons (including sickness or unemployment), are unable to maintain their mortgage repayments. However, it's a pathetic benefit which is all-but-impossible to claim. Here's why:
1. If your mortgage began after 1 October 1995, you get no help with your repayments for 39 weeks - that's nine months! (Note that the over-60s receive help from day one.)
2. ISMI only pays your mortgage interest, so the capital repayments on a repayment mortgage aren't met. Hence, most homeowners will have to make up the difference, or watch their arrears continue to grow.
3. If you have an interest-only mortgage, you get no help with payments to savings and protection plans linked to your home loan, such as mortgage endowments, ISAs, life insurance and so on.
4. ISMI is based on a standard interest rate, not the actual rate you pay (unless your rate is lower). Thus, if your actual interest rate is higher than the ISMI rate, you face another shortfall.
5. People with larger mortgages face a yet another shortfall, because ISMI only covers the interest on the first £100,000 of a home loan.
6. ISMI only covers homebuyer loans, so second mortgages and secured loans for home improvements, debt consolidation and so on aren't covered.
7. ISMI is means-tested, so you can't claim it if your partner works 24+ hours a week, or you have savings of £8,000 or more (a partner is your spouse or someone living with you as if you were married). If you have savings of £3,000 to £8,000, your entitlement to ISMI and other means-tested benefits reduces to zero on a sliding scale.
In reality, of the precious few claimants that actually qualify for any ISMI benefits, more than four out of five (over 80%) face a shortfall on their mortgage repayments. Hence, ISMI is a truly awful safety net for homeowners, because the government wants homeowners to fend for themselves!
If you get into difficulty with your mortgage repayments, here are some alternatives to relying on ISMI or losing your home:
- When it comes to paying your bills, your mortgage repayments and Council Tax come first. If you don't pay the first, you could lose your home; if you fail to pay the second, you could wind up behind bars! Learn more in our Get Out of Debt centre.
- It's important to understand how your problems arose. In Your Home Could Become A Prison, I explained the reasons why many homeowners get into arrears. Amazingly, a quarter (25%) of mortgage arrears are caused solely by financial mismanagement, so it pays to learn to budget!
- You could buy MPPI or an income protection policy to meet your repayments if you can't work. However, income protection only covers long-term sickness, whereas MPPI usually includes unemployment cover. Then again, MPPI is ridiculously overpriced, as I explained in The £10 Billion Mortgage Protection Racket. If you decide to buy MPPI, don't buy it from your mortgage lender; shop around online or go to a reputable independent insurance broker!
- If things look really grim, you could put your home up for sale. By putting your house on the market instead of allowing it to be repossessed, you're sure to get a higher sale price. It's better to sell your property than to have it taken from you to be sold at a knock-down price!
Finally, if you're worried about your financial future, these articles may just shock you into action!
More: Get a happier home loan here | Slash your protection premiums in our Insurance centre.
