What to do if you can’t afford a mortgage

I can’t afford a mortgage – what are my options?

1. Check with more than one lender
2. Lower your loan-to-value ratio if you can
3. Increase your mortgage term
4. Choose a long-term fixed rate
5. Seek help from family or friends
6. Consider government schemes or other housing programmes
7. Make sure the lender knows about all your income
8. Seek professional assistance

• Don’t check with only one lender and assume that the rest will do the same. Every lender calculates affordability differently, so make sure you look throughout the market or at least a reasonable range of lenders. The Mortgage Centres now have the capacity to readily source several affordability calculators, which may be quite useful if affordability appears to be an issue.

• Consider lowering your loan-to-value ratio if possible. The larger the income multiple a lender is willing to grant, the lower your loan-to-value (LTV). For example, a lender may provide 4.5x your salary at 80% LTV but boost this to 5 times at 75% or less.

You might lower your borrowing by either utilising additional savings when available, or if you are obtaining any further cash through a remortgage, evaluate what may be removed out of the equation to be done at a later period.

• Increase the mortgage term. This is not something we normally advocate because the longer the term, the more interest you may have to pay; however, an increase may be justified in specific instances. A longer term on a repayment mortgage will result in a lower monthly payment, which may be viewed as more reasonable by a lender. Remember that you can always willingly overpay on your mortgage once it has begun, according to the scheme’s terms and conditions, or lower the term later if your income allows.

• Choose a long-term fixed rate. Some lenders may be ready to lend you more money if they know your payments would not rise over a longer period of time, such as five years. The idea is that by the end of the fixed-rate period, your income position will have improved enough to assist in offsetting any rate increases that may occur.

• Seek help from a family member or a friend. Increasing the revenue available to a lender to determine affordability will increase your chances of success. The following alternatives may be worth considering:
  • A guarantor mortgage
  • A co-op mortgage (up to four applicants are generally allowed)
  • Joint Borrower Sole Proprietor

• Consider using a government-backed scheme or another affordable housing programme. There are several systems available, some of them are as follows:
  • Shared Ownership
  • Mortgage Guarantee
  • Deposit Unlock
  • Right to Purchase
  • Right to Acquire

• Ascertain that the lender is aware of all of your revenue sources. While you may not consider some sources of income while making your own evaluation, informing the lender of all sources of income will help them to make an informed judgement based on all of the facts. Some lenders may accept the following forms of income:
  • Overtime
  • Bonuses
  • Commission
  • Maintenance
  • Benefits
  • Third jobs
  • Rental earnings

What a lender is unaware of cannot be included in their calculations, and they cannot make any assumptions; for example, they cannot assume you are receiving child benefits just because you have children.

• Seek professional assistance. Affordability may be a quagmire in the mortgage sector, and while the concepts are largely the same across all lenders, e.g., can you afford to repay what you are borrowing, how they assess this varies. If you are using a calculator on a lender’s website, please be aware that you will not always be given an accurate result.

We recommend seeking the help of a mortgage broker. They will guide you through the application process and provide an estimate of your affordability before running a credit check. A mortgage broker is in an excellent position to know which lenders are better in particular conditions and which are more likely to accept alternative types of income, such as benefits.

They will also have access to extremely extensive affordability calculators to guarantee that what is provided at the beginning is what a lender should agree on after a thorough examination. One word of caution here: make sure you provide an accurate picture of your finances when the broker performs their calculations, i.e. make sure any credit obligations – even little ones – are mentioned.

What should you do if you can’t pay your current mortgage?

1. Contact your lender
2. Request a payment break
3. Seek professional advice
4. Consider seeking government aid
5. Prepare yourself

People’s financial status might change, often for the worse. A debt that was manageable at the start may become expensive during its life. If you find yourself in this tough circumstance, we hope the following suggestions may be helpful.

• Contact your lender. Ascertain that your lender is aware of your circumstance. They may be able to give interim remedies to assist you getting through this tough period if you keep them informed. It is in their best interests as much as yours to get you back on track.

• Request a payment break. Payment holidays, if offered by your lender, should be utilised for unique life events rather than to solve financial problems. However, if you are planning an event, such as a birth or a sabbatical, where your finances may be temporarily decreased, a payment holiday may be beneficial.

• Seek professional assistance. Speak with a non-profit organisation or charity, such as Citizens Advice. These will provide you with a wide, unbiased picture of your possibilities, not just for your mortgage.

• Consider seeking government aid. Support for Mortgage Interest (SMI) is a benefit offered to people who qualify to assist with mortgage interest payments.

• Prepare yourself. If you are currently in a situation where you cannot afford your mortgage, preparing yourself is not a viable solution. However, to reduce the chances of it happening again, it may be worth finding out what solutions are available to help you in those positions. Investigate prospective insurance products for occurrences such as redundancy or sickness, where you may safeguard your cash. Policies such as the ones listed below are common:

1. Income protection: Provide a guaranteed income in the case of layoff or long-term sickness.
2. Life assurance: A type of insurance policy that provides a guaranteed lump sum payment, as long as payments have been met, in the event of the policyholder’s death or diagnosis of a terminal disease.
3. Critical illness: Unlike terminal sickness coverage, critical illness pays a lump amount if you are diagnosed with a critical illness such as cancer or Parkinson’s disease. Insurers normally cover a wide range of ailments, but this is not infinite and can vary from one insurer to the next, so make sure you understand how your policy protects you.

What can you do if your credit score has suffered as a result of your inability to pay your mortgage?

If you have had a period of financial trouble that has damaged your ability to afford your mortgage, a record of this will certainly be put on your credit history. Indeed, it is possible that your mortgage was not the only thing affected.

While a lender is unlikely to help if you have current mortgage arrears, certain lenders may consider a variety of adverse credit incidents. The Mortgage Centres, in collaboration with our trusted affiliates, has access to numerous lenders that will consider candidates with a criminal background.

• Mortgages with CCJs
• Mortgages that have defaulted
• Missed mortgage payments
• Late mortgage payments
• Mortgages following an IVA
• Mortgages following bankruptcy
• Mortgages with a DMP
• A new mortgage following a previous Repossession

If you have a poor credit history, one of our bad credit mortgage advisors will be on hand to discuss your situation with you. Contact us today for assistance.