What should I do when I can no longer afford to pay my mortgage?

Sometimes this worrying situation arises from an innocent change of circumstances.  For example you could have been made redundant, your marriage may have broken up, or there could be other circumstances which are out of your control.

The first thing is realising that you can’t afford to pay the mortgage, and that you need to do something about it.  The second thing you should do is talk to your Bank or lender about your situation.  This can be a difficult step as often people are not willing to acknowledge that they are in financial difficulty.  By making contact with your Bank or your lender you will maintain some control of the situation and be able to explore options for repayment.  This may avoid the Bank taking control and issuing a Property Law Act Notice/Default Notice that could lead to a mortgagee sale of your home. 

The options that the Bank or lender may consider include:

• Changing the time and frequency of payments e.g. from fortnightly to monthly;
• Extending the term of the mortgage so you that you have smaller payments to make; and
• Changing the repayments to interest only, until your financial circumstances improve.

Of course there is no guarantee that your Bank or lender will offer any of the options outlined above, especially if they think that your inability to service the loan is likely to be long term.

Before any action can be taken, the lender (mortgagee) must serve on you a Default Notice under Section 119 of the Property Law Act 2007.  This Notice is required to outline the defaults you have made under the mortgage and note exactly what the arrears are including any penalties.  The Notice will usually give you a period of not less than 20 working days to remedy the defaults after your receive it. 

If you cannot remedy the defaults you should immediately discuss this with your Bank or lender.  It may be prudent to instruct a Solicitor to see if they can negotiate an arrangement on your behalf.

In the end if you cannot pay the mortgage there will come a time, sooner or later, when the Bank or lender will decide to sell your home.  After all, the purpose of the mortgage is to give the Bank security over your home so that if you cannot pay the mortgage, the Bank or lender can sell it to recover their money. 

If you are in this unfortunate position, you should try to be proactive and if possible keep control of the situation.  Most Banks or lenders would prefer for the owner to organise the sale rather than have to force a mortgagee sale.  However, the sale price must be fair, reasonable and in line with current market values.  If the sale price is not enough to repay the mortgage then you may have difficulties persuading the Bank or lender to release its mortgage unless you can convince them that you are selling at market value.  If the Bank has already entered into a contract to sell the home then obviously you have lost the opportunity to sell it personally, and will be bound by the Bank’s contract and will have to give up possession to the new buyer.

It is important to remember that you can stop the sale of your home by paying all that you owe right up to the last minute before the sale and purchase of the house is completed.

The most important advice we can give you is…

1. Act fast!  Receiving a Property Law Act Notice/Default Notice can be a very stressful time.  The best thing to do is act quickly, speak to your Bank or lender and get some professional advice if required.
2. Don’t ignore the Notice, it won’t go away.