IndustryIssue 03 - 2024MAGAZINE
rent or mortgage

What to do if your rent or mortgage is unpaid?

The largest mortgage lenders in the United Kingdom decided to abide by a set of guidelines known as the Mortgage Charter in 2023

Throughout 2022 and 2023, the term “cost-of-living” hogged the limelight, and even now, domestic prices and the risks to food production remain elevated across the economies. Although inflation has been declining in response to many central banks’ interest rate hikes, countries are still facing elevated price pressures. People are still finding it difficult to pay their bills. In the year ending in February 2024, private sector rents rose by an average of 9%, and rising interest rates resulted in higher mortgage payments for many.

You might worry right away that you won’t be able to keep your house if you find yourself in financial trouble, but being aware of your resources and legal rights will help you get through this trying period.

Your rights as a renter are determined by the kind of tenancy you have. You almost certainly have an assured shorthold tenancy if you rent from a private landlord in England (Wales and Scotland have different laws). This means that your rent is determined by the amount you and your landlord agreed upon. Either a fixed term or a periodic agreement that rolls over from month to month was agreed upon. Whichever kind you have, if you don’t make a payment on time, your landlord cannot kick you out right away.

Most tenants with fixed-term leases have a formal contract with beginning and ending dates. If you fail to make a payment and there are over two months left on your lease, your landlord will have to go through an extended legal procedure.

In order to reclaim the property, they must first give you a section 8 notice and then request a “possession order” from the court. The court will typically issue an outright possession order if you are more than two months behind on your rent, usually with a two-week possession date.

The court will be more lenient if, at the time of the hearing, you have not missed more than two months’ rent. The court may decide not to issue a possession order or may issue a suspended order if you agree in court to pay the full amount of rent that is owed. After that, the arrears must be settled.

The legal procedure is typically completed more quickly if your tenancy is month-to-month and you have been there for four months or longer. With a Section 21 notice, your landlord can evict you, but you are allowed to remain until the date specified in the notice. Additionally, as soon as you receive a Section 21 notice, you can ask the council for assistance in finding a new place to live. Your landlord is required to give you a Section 8 notice in place of a Section 21 notice if you have been residing there for less than four months.

A good track record makes most landlords reluctant to evict their tenants. They might be willing to give you more time to pay, since finding a new one costs money and time. Make contact with them as soon as you can. If you incur housing debt, your rights are stronger in Scotland, and they vary depending on when you started renting in Wales.

The government website outlines the legal procedure if your landlord wishes to begin the eviction process, and the housing charity Shelter England offers clear guidance on receiving assistance with rent. Legally speaking, you can stay in your house until you obtain a court order compelling you to do so. However, continuing to live there can result in additional rent arrears that you will still need to pay off.

Mortgage borrowers

If you are receiving welfare benefits and are finding it difficult to pay your mortgage, you may be eligible for assistance with paying the interest on up to £200,000 of your mortgage. A government loan called “Support for Mortgage Interest” is due back with interest when you sell your home. This is limited to recipients of specific benefits.

Lenders are required to follow a pre-action protocol if you miss a mortgage payment, which includes trying your best to work out a plan to pay back the arrears. Repossession ought to be the very last option.

The largest mortgage lenders in the United Kingdom decided to abide by a set of guidelines known as the Mortgage Charter in 2023. The charter recommends steps like extending the mortgage term to lower payments, providing a switch to interest-only payments, and granting temporary payment suspensions to people who are struggling financially.

In England and Wales, the court must determine that you can pay both your regular instalments and any arrears within a reasonable time frame, which is the remaining mortgage term. The amount that you must pay in addition to your regular mortgage payments in order to pay off the arrears will typically be determined by the judge.

As long as you are able to make these payments, the possession order will be suspended. The court may grant you an outright possession order but give you a 14- or 28-day window to find another place to live if you are unable to persuade it that you can make the payments within a reasonable amount of time.

Selling your house instead of having it repossessed might make sense in certain situations. If you think you might end up homeless, you might be able to get assistance from your local council.

The “Housing Loss Prevention Advice Service” offers free emergency legal advice and representation in most courts on the day of possession hearings to anyone who is in danger of losing their home. The service also offers free legal advice on housing, debt, and welfare benefits. Advice on handling late mortgage payments is also available from Shelter.

Meanwhile, an examination of current accounts at a major bank indicates that annual spending on mortgages and rent increased by 6.3% in May 2024.

According to research by Barclays, this growth rate was higher than the increase of 3.6% the previous month. For this study, the bank used the transactions from its current account to identify direct debits and bank transfers made to private landlords and mortgage lenders.

Several lenders were covered by these transactions, including Barclays. Although the data showed an increase in housing costs in comparison to 2023, the month-to-month variation appeared to be insignificant, suggesting that consumers might not experience a decline in their standard of living in the near future, particularly in light of the repeal of the Ofgem energy price cap in April 2023.

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