‘Arrears’ is a term used in financial and legal situations, referring to the status of owed payments – and their corresponding due dates. It is used to describe something that has not received its payment by its set due date, so in simpler terms, ‘Arrears’ are overdue payments. If a payment is missed (one or more) the account will be in arrears – for example; a phone bill, or a mortgage.
If you miss your payments on your mortgage, and go into mortgage arrears, you will need to act quickly. Speak to your lender as soon as possible. Once your lender is aware that you are unable to make your repayments in time, they can help you get back on track.
In order to avoid mortgage arrears in the first place, have a look at these steps you can take.
- Do a budget. Budgeting can be an incredibly important aid, even if you are not struggling with your money! A budget will organise your money and allow you to see anything extra you could possibly put away to tide you over if things get tight. It allows you to manage your outgoings efficiently, hopefully therefore preventing you from falling behind with repayments.
- Speak to your lender. In order to prevent arrears, tell your lender if you feel you are in financial trouble. If you are looking to acquire state help of any kind such as Support for Mortgage Interest (SMI), you will need to negotiate a payment plan, and the sooner you do the better.
Getting a mortgage after arrears
Having been in arrears generally will not have as big an impact on your likelihood of getting a mortgage in the future as you may think. Of course, some lenders will have strict guidelines in place, and deny possible borrowers based upon arrears alone. However, there are lenders who will treat it like any sort of adverse credit, such as defaults, and after a period of time will accept your application. As you are most likely aware, you will be seen as a higher risk case, therefore it is important that once you have been in arrears you create a budget or use other methods to improve your credit rating. This will show your responsibility, which will appeal more to lenders.
Having mortgage arrears can be caused be a variety of factors. It could be you have missed the direct debit because you were not paid on time, it could be you have struggled to keep up with the mortgage repayments due to having to take some time off work due to illness or because of a change of jobs.
Some clients may have spoken with their existing mortgage provider to reduce their normal payment for a period of time as they knew they would struggle financially and yet even though this request has been accepted by their provider, missed payments will still show on a customer’s credit file as they have not kept up their contractual payment.
Can I get a mortgage with a mortgage arrears?
The simple answer is yes but it will depend how on old the arrears are and how many there have been. Each lender will have their own rule book dictating how many mortgage arrears they will accept from a new applicant over a given period of time. If someone is continually missing mortgage payments then it is unlikely that another lender will want to borrow to them.
As a rule of thumb, the more recent the missed payments the less chance you have of re-mortgaging to a new lender. The amount of missed payments is also key, 1 or even 2 missed payments within the last 6 to 12 months should not cause a massive concern on their own but most lenders will frown upon an application once there are 3 missed mortgage payments on a credit file.
View Finance have advisors with the expertise in this field and can help with assessing what level of mortgage arrears are acceptable to certain lenders.
Obtain a credit report
It is essential that our specialist mortgage advisors have access to your credit report. They need to see what any lender is going to see before approaching a lender to perform a credit search. Sometimes there are errors on a credit profile that will result in a decline from a lender. We would recommend using a website such as Check My File as they cross reference the 4 major credit agencies. This way any View Finance mortgage advisor can see why your score is low and work out which lenders may consider you.