If you are in employment and have a mortgage, it’s probably safe to say that you rely on your monthly wage to meet your mortgage repayments and keep the roof over your head. So, what happens to your mortgage if you lose your job and therefore your income?
Losing your job can be a real shock that can turn your finances upside down. If you do find yourself in this situation and you are worried about how you can continue to pay your mortgage, there are temporary solutions out there to help you get by.
Speak to your lender early
If you lose your job, you won’t automatically lose your mortgage. This only becomes a real possibility if you begin missing mortgage payments. Your first step should always be to contact your lender and alert them of your situation. They will always work with you to find a temporary and sometimes longer-term solution that might help you whilst you’re out of work.
Remember – lenders don’t want to repossess your property. It’s very costly and time-consuming for them. Instead, they will want to try and find a way to help make your mortgage borrowing more affordable and manageable for you.
Mortgage payment holiday
One option that your lender may potentially offer is a mortgage payment holiday. A mortgage payment holiday provides some flexibility to your mortgage by allowing you to stop or reduce your monthly repayments for a short period of time – usually up to six months. It is designed to help during short-term or unexpected changes to your financial situation, such as losing your job.
Whilst a mortgage payment holiday can provide much-needed help, it’s important to remember that it is not free money. It can only provide a breathing space whilst your finances are reestablished or a more permanent solution is put in place.
You must resume your mortgage repayments at the end of any mortgage payment holiday period. You will need to catch up on the missed payments over the remaining term of the loan. This will probably mean your monthly repayments will increase slightly as a result. Any unpaid interest accrued during the holiday will also be added to the debt.
Not every lender offers mortgage payment holidays. If this is something that you think might help you in the short-term whilst you find a new job, then make sure you find out whether this is possible.
Find out more – ‘What is a mortgage payment holiday?
Extending your mortgage term
There are changes you may be able to make to your mortgage in order to make the monthly repayments more affordable for you. By lengthening the term of your mortgage, you spread your payments out over a longer time period. This will generally bring your monthly repayments down, in turn making them more affordable.
One of the drawbacks to extending your mortgage term is that you will be paying your mortgage off for a longer period. For this reason, it is important to consider your age before committing to this. If you are currently middle-aged or older and you extend your mortgage term, you could well still be making mortgage repayments beyond your planned retirement age.
And of course, you will still need some level of income in order to maintain these – albeit reduced – new mortgage repayments. This could be from a combination of a partner’s income, income from some sort of part-time work you might secure, benefits and/or the use of savings.
Find out more – ‘Extending your mortgage term’
Can I get government support if I lose my job?
Especially since the COVID-19 pandemic, the government in the UK has continued to offer support to those who find themselves in a difficult financial situation due to loss of earnings. Part of this support has been the Support for Mortgage Interest (SMI) scheme.
In order to qualify for the SMI scheme, you must also be receiving one of these benefits:
- Income-based Jobseeker’s Allowance (JSA)
- Income-related Employment and Support Allowance (ESA)
- Income support
- Universal Credit
- Pension Credit
If you lost your job recently and haven’t yet looked into the support you qualify for, you should sign on to the benefits available to you straight away. These benefits are in place to help you, so make sure you utilise them. Check your eligibility here.
With the SMI scheme, the government makes interest payments on the first £200,000 (or £100,000 if you are getting pension credit), of your outstanding mortgage for the time that you cannot afford to pay. The government usually makes these payments directly to the mortgage lender who will then lower your monthly mortgage repayments accordingly.
The support is paid as a loan. You’ll need to repay with interest when you sell or transfer ownership of your home. You can only use SMI towards the interest on your mortgage, and not towards missed mortgage payments.
Your lender may also allow you to switch to interest-only payments on your mortgage whilst you find a new job. If you then also qualify for SMI, this gives you some temporary breathing space whilst money is tight. Remember though, while you are not paying your mortgage, the repayments don’t just disappear. You will still need to catch this up later down the line. Once you are back in full-time employment, you could do this by overpaying each month to clear the payments missed if your lender will allow you to do so.
Find out more – ‘How much can I overpay on my mortgage?’
What if I cannot afford to stay in my home?
Hopefully, your unemployment is only temporary and you are able to arrange a short-term fix to help you meet your mortgage repayments whilst you secure new employment. If this is not the case, however, then staying in the home may not be feasible. You may want to consider a longer-term fix.
If you are facing repossession, it may make sense to take control of the situation and put your property on the market yourself. You can agree to a sale at the best price and repay your mortgage debt in full, plus arrears. Taking this action proactively will avoid having a repossession order registered against you, which could severely affect your chances of getting a mortgage again in the future.
If however, you owe more than your home is worth, you may have to consider a short sale. This is where you agree with the lender that they will accept the amount you sell your home for as full repayment of their loan, even though it is less than the amount you actually owe. Your lender would have to agree to write off the shortfall amount.
You could also explore something called ‘Deed in Lieu of Foreclosure’. With this option, your lender agrees to release you from your mortgage in exchange for you giving them the deed to your home. Both this option and a short sale will have a negative impact on your credit rating.
Redundancy and unemployment can happen to anyone and the COVID-19 pandemic has certainly made us aware of this. But remember – your mortgage lender is here to help you, not hinder you.
At Mortgage Light, our friendly and understanding team are also here to help you too. We will speak to your lender on your behalf during this difficult time and advise on the most appropriate ways to tackle your situation.
If you’d like to chat, please contact us today.