Q&A

I’m heavily in arrears on my mortgage. What succour does this latest report offer?

The first thing to remember is that you are not alone. The number of mortgage holders in payment difficulties is growing in size – on the latest figures, more than 70,000 are in arrears or have had their payments rescheduled – and they are becoming increasingly vocal. Yesterday’s report is a response to growing pressure for measures to alleviate the burden faced by those in arrears.

That’s all very well, but what difference will it make to my efforts to pay the mortgage?

By the end of the year, a range of measures should be in place to strengthen your hand when dealing with the bank. Lenders will have to put in place a Mortgage Arrears Resolution Process to deal with arrears cases.

They won’t be able to charge penalty interest or arrears charges within this process. They won’t be able to force you to move from a low interest rate tracker mortgage if you have one. And, generally speaking, they won’t be able to push for repossession so long as you are making reasonable efforts to repay your debt.

But my indebtedness will keep rising if I don’t keep up with the payments – correct?

There is a new proposal that will help arrest the rise in debt. The Deferred Interest Scheme (DIS) is designed for those who can pay at least 66 per cent of their mortgage interest and allows the payments of the unpaid interest to be deferred for up to five years.

What happens if I sell up?

In this case, the deferred interest is added to the principal outstanding on the mortgage. But in cases where the proceeds do not cover the outstanding debt, the residual amount is treated as an unsecured debt still owed to the lender.

How do I know when the game is up?

The report suggests an unsustainable mortgage is one where the accumulated interest in a deferred interest account is equal to 18 months’ interest, or when a borrower has participated in a DIS for five years.

Can I not just walk away from my debts?

Not in the legal sense. The report recommends against any scheme of debt forgiveness, because it might set a bad example. Trading down might solve some of the problem, but as the report points out the costs involved are high. Some have suggested stamp duty should be reduced for those in such a position.

What if, ultimately, I can't pay?

The number of repossessions taking place is quite small; less than 100 per quarter and about one-seventh of the levels in the UK. The report makes a number of suggestions that would ease the pain involved in such cases; for example, allowing people to stay on in their homes for a period even after repossession, or making sure they are eligible for social housing before an order is made. It also calls for reforms to personal bankruptcy law, but these may take some time to introduce.