Free advice line 0800 014 7863
The Citizens Advice Bureau has noted a 49% increase in calls regarding mortgage arrears, so Debts plans to answer the question: “What happens when you default on a mortgage.” Mortgage lenders are extremely nervous at the moment, not only are they very reluctant to lend to new borrowers but they are also monitoring existing home loans somewhat anxiously. More...
They have a right to be nervous – around 1 million property owners are expected to default on their mortgage over the next 12 months due to rising redundancies. While job losses will probably account for the vast majority of mortgage defaults, many will fall into arrears through less drastic reasons, such as changing bank accounts or being paid later than expected and so on. Unfortunately, however, the reason for your missed mortgage payment will not cut any mustard with the bank. Consequences of defaulting on a mortgage can be drastic; and a missed mortgage payment will be entered on your credit report that can be disastrous if you plan to remortgage with another lender.
As directed by the Financial Services Authority, mortgage lenders must send you a letter within 14 days if you miss a payment. The letter will:
In the current economic situation you can expect lenders to react well before the 14-day deadline. Banks and building societies are more likely to call you within days of a missed mortgage payment and explain the situation. You will also incur a fee for defaulting on your mortgage.
Some lenders, such as Nationwide, allow customers until the end of the month to make the payment and will only class the breach as a default if the money has not been made up by the first day of the following month. In the case of Nationwide, the building society will only charge a late payment fee of £20 if the default has been avoided. Bradford & Bingley, the state owned building society imposes a £25 monthly fee that is added to the next mortgage payment. Each missed payment incurs another £25 fee which begins to incur interest if still unpaid by the end of the year. Northern Rock, another state owned building society are slightly more forgiving and will only impose a charge of £25 on a second missed mortgage payment. If the borrower misses multiple payments the charge will rise to £55. Woolwich, on the other hand prefer to impose a £40 charge for a missed mortgage payment, while the Cheltenham & Gloucester charges £31. All of these charges are designed to cover administration charges and the cost of chasing the borrower through letters and telephone calls.
Some debt charities have been criticial of the fees imposed by lenders on mortgage holders. They argue that people already in mortgage arrears are being punished further by bank charges. The criticism has prompted the FSA to investigate whether the charges are excessive and is expected to publish its conclusions in May 2009.
Your credit rating is extremely precious and a good one is valued a whole lot more since the recession took hold, mainly because the banks are a lot choosier about who they give their money to. A late payment on your mortgage will damage your rating and make any future credit applications extremely difficult. A mortgage default listing on your credit report will remain there until you have caught up with payments, even if your track record has been flawless. Worse stil, a missed mortgage payment will remain on your credit report for 6 years and is considered more serious than a missed credit card or personal loan payment. If you missed your mortgage payment because you can not afford your monthly commitment then you need to speak to your lender immediately. For more information on what you should do if you are in mortgage arrears, click here.
