Falling into mortgage arrears can leave borrowers facing a difficult question: what happens if they cannot clear the arrears immediately and the lender does not accept the repayment arrangement they have proposed?
For many homeowners and landlords, a payment arrangement can appear to be the obvious solution. The borrower may be able to afford the normal monthly mortgage payment but not the accumulated arrears, so they may ask the lender to allow them to repay the outstanding amount gradually.
However, there is an important distinction between asking for an arrangement and having an automatic right to a particular arrangement.
Mortgage lenders are expected to treat customers experiencing payment difficulties fairly and with appropriate consideration. Current FCA guidance states that firms must treat customers in or approaching arrears or in default with forbearance and due consideration.
Before looking at payment arrangements, it is important to understand what happens at the earlier stage of missed payments. Borrowers who have only recently fallen behind may find our guide What Happens If You Miss a Mortgage Payment in the UK? – Immediate Bank Claims useful, particularly when trying to understand how a missed payment can develop into mortgage arrears.
At the same time, the lender will need to assess the individual circumstances and whether a proposed arrangement is realistic and sustainable.
This means that a lender may not necessarily accept the exact proposal put forward by a borrower. The more important question is what happens next and what options remain available.
What Is a Mortgage Payment Arrangement?
A mortgage payment arrangement is an agreement between a borrower and lender concerning how mortgage payments or arrears will be managed.
The precise form can vary considerably.
For example, a borrower may be able to maintain their normal monthly mortgage payment while making an additional payment towards the arrears. In another situation, the lender may consider a temporary change to the way payments are made, depending on the borrower’s circumstances and the available options.
MoneyHelper states that lenders must make reasonable attempts to reach an agreement with borrowers experiencing payment difficulties, including considering whether the way and timing of payments can be changed.
But this should not be confused with a guarantee that every request will be accepted.
Can the Bank Simply Say No?
The answer requires some qualification.
A lender is not necessarily required to accept whatever repayment proposal a borrower puts forward. The lender may assess the borrower’s financial circumstances, affordability and the sustainability of the proposed arrangement.
However, current FCA rules require firms to treat customers in or approaching arrears with forbearance and due consideration.
Therefore, the position is not simply that a lender can disregard a borrower experiencing financial difficulty.
The circumstances of the borrower matter.
A proposal that appears realistic and sustainable may be treated differently from one that would leave the borrower unable to meet essential expenditure or likely to fall into further arrears.
Why Might a Proposed Arrangement Be Rejected?
There can be several reasons why a particular proposal does not work for the lender.
One possibility is that the amount being offered towards the arrears is too low to resolve the problem within an appropriate period.
Another possibility is that the borrower has not provided enough information for the lender to properly understand their financial position.
There may also be a more fundamental problem: the borrower may not actually be able to afford the normal mortgage payment.
If someone cannot afford the ordinary monthly payment, agreeing to an additional amount towards historic arrears may simply create another missed payment in the future.
This is why affordability is such an important part of mortgage arrears discussions.
For borrowers who are already struggling with affordability, our guide How Mortgage Lenders Assess Affordability When You’re Already in Arrears – Immediate Bank Claims provides further information about the factors that can become relevant when a lender considers a borrower’s financial position.
What If You Can Afford the Mortgage but Not the Arrears?
This is one of the most important situations to understand.
Imagine a homeowner normally pays £1,300 per month. They experienced a temporary loss of income and missed three payments, leaving a substantial amount outstanding.
They have now returned to work and can afford the £1,300 monthly payment again.
However, they cannot afford to pay the entire historic arrears immediately.
The borrower may therefore ask whether the arrears can be repaid gradually while the normal mortgage payments continue.
That is a very different situation from someone who cannot afford the £1,300 mortgage payment at all.
When discussing an arrangement, the borrower should make this distinction clear and provide an accurate picture of their current financial circumstances.
Our previous guide, Can You Catch Up on Mortgage Arrears? What UK Borrowers Need to Know – Immediate Bank Claims, looks more closely at this situation and explains why dealing with historic arrears is different from solving an ongoing affordability problem.
What If You Cannot Afford the Normal Mortgage Payment?
If the underlying mortgage payment itself is no longer affordable, the problem is more serious.
Simply proposing an additional payment towards arrears may not be realistic because the borrower cannot maintain the underlying contractual payment.
In that situation, the conversation may need to focus on whether there are alternative ways of making the mortgage more manageable.
MoneyHelper currently advises borrowers who are struggling to contact their lender as early as possible. Depending on the circumstances, lenders may discuss options such as changing payment arrangements or other forms of support.
The suitability of any option depends on the individual circumstances and the mortgage terms.
What Information Might the Lender Need?
A lender needs enough information to understand the borrower’s financial position.
This may include information about income, household expenditure, other financial commitments and the reasons the mortgage payments were missed.
The FCA’s current guidance says firms should provide customers in or approaching arrears with clear and understandable information that takes account of their individual circumstances and helps them understand their financial position and available options.
For borrowers, this means that preparing an accurate financial picture before approaching the lender can be worthwhile.
It is generally better to explain what can realistically be paid than to promise an amount that is unlikely to be sustainable.
What If Missing Payments Have Also Affected Your Credit Record?
Mortgage arrears can have consequences beyond the immediate amount owed. Missed or late mortgage payments may also affect how a borrower’s payment history is recorded.
Anyone who has recently missed a mortgage payment should therefore understand the wider consequences rather than focusing only on the outstanding amount.
Our guide Can Missing One Mortgage Payment Affect Your Credit Score in the UK? – Immediate Bank Claims explains the potential relationship between missed mortgage payments and a borrower’s credit record.
Understanding this can also help borrowers appreciate why early action may be preferable to allowing arrears to continue increasing.
What Should You Do If the Bank Rejects Your Proposal?
A rejected proposal does not necessarily mean that the situation is finished.
First, establish why the proposal was not accepted.
If the lender believes the proposed repayment is too low, the borrower may need to consider whether there is a different sustainable amount.
If the lender requires more information, providing an updated income and expenditure assessment may help clarify the circumstances.
If the borrower believes the lender has not properly considered their situation, they may also wish to use the lender’s complaints process and obtain independent advice.
The important point is not to respond to rejection by simply stopping communication.
Can the Bank Start Repossession if You Cannot Agree an Arrangement?
Repossession is a much more serious stage of the process.
Current FCA consumer guidance states that a lender should not start repossession action unless reasonable attempts to resolve the position have failed.
MoneyHelper similarly states that lenders must not seek repossession unless all other reasonable attempts to resolve the situation have failed and reasonable notice has been given.
This does not mean repossession can never happen if a payment arrangement cannot be agreed.
It means that borrowers should understand that the process involves more than simply asking for a repayment arrangement and receiving a refusal.
If the arrears remain unresolved, the lender may ultimately consider legal action.
Borrowers who are concerned about how many missed payments may lead to more serious action should also read How Many Mortgage Payments Can You Miss Before Repossession in the UK? – Immediate Bank Claims, which explains why there is no simple fixed number that automatically results in repossession.
What About the Mortgage Charter?
The Mortgage Charter remains relevant to many borrowers, but it is important not to describe it as though every mortgage lender is bound by every Charter commitment.
The FCA’s latest published data states that the Mortgage Charter has 47 signatories representing around 90% of the mortgage market. The Charter contains commitments that go beyond the FCA’s regulatory requirements.
One important Charter commitment is that signatory lenders will not force a borrower to leave their home without consent, except in exceptional circumstances, within 12 months of the first missed payment.
However, borrowers should check whether their lender is a Charter signatory and understand that the Charter sits alongside the wider regulatory framework.
What If Repossession Proceedings Have Already Started?
This is where borrowers should act quickly.
If formal possession proceedings have begun, simply making a new proposal to the lender may not be enough to resolve the situation.
Borrowers should take court documents seriously and obtain appropriate advice.
For homeowners in England and Wales who receive written notice from a creditor seeking possession of their home, the Housing Loss Prevention Advice Service can provide free legal advice and representation in appropriate circumstances.
Anyone who wants to understand the stages that can follow when mortgage arrears develop into possession action should read Mortgage Repossession Process in the UK: What Happens From Start to Finish – Immediate Bank Claims.
A borrower should not assume that failing to attend a court hearing will make the problem disappear.
What About Buy-to-Let Landlords?
The position can be particularly complicated for landlords.
A landlord may have a valuable property but still experience mortgage arrears because of rental voids, tenant arrears, unexpected repairs or wider cash-flow problems.
Property value alone does not necessarily solve a monthly mortgage payment problem.
A landlord considering a payment arrangement should therefore look at the property’s actual rental income, expected expenditure, mortgage payments and existing arrears.
The lender may also need to understand whether the financial difficulty is temporary or likely to continue.
The Importance of a Sustainable Proposal
The strongest lesson from mortgage arrears cases is that a payment proposal should be realistic.
It is tempting for a borrower to offer the largest amount they think they can possibly pay because they want to demonstrate commitment.
But if that amount leaves insufficient money for essential expenditure and results in another missed payment, the situation may become more difficult.
A sustainable proposal is generally more meaningful than an unrealistic promise.
The objective should be to find an approach that reflects the borrower’s genuine financial position rather than simply offering an amount that looks attractive on paper.
Conclusion
A bank may not necessarily accept the exact mortgage payment arrangement proposed by a borrower, but that does not mean lenders can simply ignore customers experiencing financial difficulty.
Current FCA guidance requires firms to treat customers in or approaching arrears with forbearance and due consideration, while MoneyHelper advises borrowers to engage with their lender and states that lenders must make reasonable attempts to reach an agreement.
The key issue is therefore not simply whether a bank says “yes” or “no” to one proposal.
It is whether the borrower’s financial circumstances have been properly understood, whether the proposed payments are sustainable and what other options may be available.
If you are already dealing with mortgage arrears, ignoring the problem is unlikely to improve the position. Understanding your financial circumstances, communicating with the lender and obtaining appropriate independent advice can help you make better-informed decisions before the situation progresses further.
Disclaimer
Immediate Bank Claims is not a firm of solicitors or barristers. We provide independent support, guidance and assistance in matters relating to property repossession, mortgage arrears, LPA Receivers, debt matters and related issues. This article is provided for general information only and should not be treated as legal or financial advice. Individual circumstances vary, and appropriate professional advice should be obtained where necessary.