Debt from Secured Loans

Specialist money advice for debt from secured loans & mortgages

The UK Insolvency Debt Advice Service's advisers can help clients on debt from secured loans and mortgages. Debt consolidation is the process of taking out one single loan or mortgage to pay off many other loans and debts. This is often done in order to obtain a lower interest rate, or to have the benefit of one single monthly repayment. The problem is many callers do not budget well enough and as a result get into debt from secured loans.

One of the main reasons for debt from secured loans is the huge amount of specialist debt consolidation mortgage brokers who target people with current or past credit problems. An example of past credit problem clients they are looking for are:

• Clients with such as bad credit in the form of mortgage arrears
• Clients with county court judgements (CCJs)
• Clients with defaults
• Clients who have IVAs
• Clients who already have debt consolidation mortgages
• Clients with with existing debts.

Money Advice Direct is able to provide information and advice on how to deal with debt from secured loans and mortgages. The advisers are specially trained in mortgage advice for debt consolidation.

In the UK there are several different types of mortgages targeted at clients with debt from secured loans such as:

• Mortgages for the self employed.
• Mortgages for discharged bankrupts.
• IVA mortgages.
• Mortgages for with CCJ's.
• Mortgages for debt consolidation purposes.
• Mortgages for clients with poor credit.
• Bad credit mortgages for people with impaired credit.
• Self employed mortgages.
• Mortgages for clients with county court judgements

Clients must be reminded that a secured debt consolidation loan is tied to the clients house. If you find it difficult to make your monthly payments, a secured debt consolidation loan must be treated as a priority. If you take out a secured debt consolidation loan, then all of your unsecured debts may become secured debts. You do not have to take out a secured loan in order to consolidate debt, but you are likely to pay a higher interest rate if the loan is unsecured. If you have consolidated your debts with a secured loan then The UK Insolvency Debt Advice Service may be able to help.

• Mortgages and mortgage arrears are classed as a 'Priority Debt' and can lead to you losing your home.
• It is very important that you try and sort out this problem as soon as possible by either contacting your lender or getting advice.
• It's also important that you keep paying something on a regular basis even if you can't afford the full amount.

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First and Second Mortgages

It is possible that you may have a first and second mortgage.

The first mortgage is the loan you take out to buy your home.

The second mortgage may be known as a 'Secured Loan' which is secured on your home. You should check your documents or get some advice if you are unsure about the content of your agreement.

Secured Loans are treated as a priority debt. The lender can go to court to repossess your home if you don't make the repayments.

If you have any worries or concerns, seek advice.

Will my Mortgage Company Agree to Accept my Offer of Payment?

You will need to provide the lender (mortgage company) a full list of your income and expenditure (on the Personal Budget Sheet ).

The income and expenditure details that you provide will give the lender an overview of your current financial position.

You should also let the 'lender' know if your circumstances have changed such as death of a partner, marriage breakdown, unemployment, reduction in wages or benefits, illness, birth of a child, etc.

The 'lender' will want you to offer an extra sum of payment towards the arrears in addition to the contractual monthly installment. Some lenders will request that the arrears be cleared over the next 12 to 24 months. If you cannot manage this ask for more time and start paying what you have offered.

Tell the 'lender' if your house is worth much more than the total mortgage as they may agree for you to repay the arrears over a longer period.

Lenders don't want people to lose their homes.

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Ways of Helping You with Paying Your Mortgage

There are many ways in which you can get help to pay your mortgage.

This help can be from the mortgage lender, any insurance policies you may have and the Department for Work & Pensions (DWP)

Your mortgage lender may offer some type of 'Rescue Scheme' whereby they buy back your home or part of it. As a result of this you become a tenant or part tenant.

It is worth asking your mortgage lender if they operate this scheme, especially if you want to remain in the property and have very little or no money to offer.

It is also worth enquiring with Housing Associations to see if they run similar schemes.

Always check that you have claimed under any mortgage protection insurance you may have. If you do not understand your terms and conditions of insurance get some advice - You may be losing money by the day.

You may be able to claim extra benefits from the Department for Work & Pensions (DWP) to maximize your current income if it is considered to be low. These would include Working Tax Credit, Income Support top-up etc; or you may qualify for disability benefits based on personal circumstances for yourself, partner or children.

Contact the DWP or Welfare Rights for advice.

Taking in a 'lodger' or a 'tenant' may be a possible short/long term solution, however if you are claiming any state benefits then you would need to check how this may affect your entitlement to your existing benefit either by contacting the DWP or your local advice service.

Help with paying your mortgage if you get Income Support or Job Seekers Allowance

If you are in receipt of Income Support or Job Seekers Allowance, the Department for Work & Pensions (DWP) should pay some of the interest on the mortgage.

You will need to complete a Housing Costs form in order to qualify for some help.

It is possible that you may have already completed this form wen you initially claimed for Income Support or Job Seekers Allowance but do not receive any help as yet. The reason for this is that there is a qualifying period for assessing help. This depends on when you took out your mortgage.

Mortgages Taken Out Before 2nd October 1995

For the first 8 weeks - you will receive no help from when your claim for Income Support or Job Seekers Allowance is awarded.

From the 8th-25th week - you should receive half of your Mortgage Interest payment.

From the 26th week - you should receive the Full Mortgage Interest.

Mortgages Taken Out After 2nd October 1995

For the first 39 weeks - you will receive no help from the date when your claim for Income Support or Job Seekers Allowance is awarded.

From the 40th week - you should receive the Full Mortgage Interest.

Be aware that the interest paid by the DWP is at a set rate. This does not necessarily match the rate that you are being charged by the mortgage lender. You would have to make sure that you took this into account when calculating what you need to pay including any arrears.

Other Types of Help you can get from Your Mortgage Lender

Lenders will try and help you to sort out any problems you may have with paying your mortgage.

• They may also offer to help you in other ways, but remember do not sign anything until you feel comfortable with any explanation offered or before you receive independent financial advice.
• The lender may agree to add the arrears to your total mortgage debt - this option is usually considered when your property is valued more than the amount outstanding on the mortgage.
• The possibility of changing from an endowment to a repayment mortgage may be an option. This could release money from the endowment policy towards your arrears. However, you may end up paying more than your usual monthly instalment. Remember you must get independent financial advice if you are considering cashing in any endowment policies you may have .
• Your lender may agree to increase the mortgage term beyond the original terms, ie. an increase from 25-30 years. This will reduce the monthly payment in order for you to make an offer towards the arrears you have.
• Your lender may consider the possibility of you paying the interest on a temporary basis. This is only appropriate if you have a 'capital repayment mortgage'.

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What happens if I can't afford to pay the mortgage?

If you have considered and explored all of the options prior to this section your final option may be to consider handing back the keys to your mortgage lender or selling the property yourself.

Unfortunately, your instalments will not stop until the property is sold.

If you sell the property yourself it is more likely that you will get a better price than if the mortgage lender sold your home.

You may also be left with a shortfall in the mortgage after the property has been sold. This means that you could still owe the lender money.

You need to take this into consideration before handing back your keys.

It is possible that the local council or housing associations may consider that you have intentionally made yourself 'homeless'. This may cause difficulties if you are looking for the council to rehouse you.

If you are thinking about any of these options get advice before making any final decisions with your mortgage lender.

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Court Action - What happens if my mortgage lender takes me to court?

• Remember - you cannot be evicted from your home without a court order.
• Even at this late stage your mortgage lender may be prepared to make an arrangement with you.
• Any paperwork you receive from the mortgage lender or from court is important. Keep this in a safe place and seek advice as soon as possible.
• You can have a representative at court.
• It is essential that you attend court as well.
• It is the decision of the Court whether they allow you to keep possession of your home. It is not the lenders decision.
• The court will look at both points of view and normally set an 'order to pay' the monthly installment plus an affordable amount off the arrears.
• It is important that you keep up to date with your court order payments as the mortgage lender can go back to court to request further action to be taken against you.
• If your circumstances change and you are unable to keep up with the payment set by the courts, you can go back to court and apply for reconsideration by completing Form n244.

Please note that debt consolidation is used as a way of taking several unsecured debts and securing it on the clients home. Secured loans are very attractive because the interest rates on secured loans such as mortgages are normally lower than the interest rates on unsecured borrowing. Therefore, debt consolidation mortgages can often mean that your total monthly outgoings are reduced. The problem is that a debt consolidation mortgages will usually run for a longer term than the original unsecured loans it is used to clear. This means that, in the long run, clients will end up paying more in interest charges by taking out a debt consolidation mortgage. But if that means you can keep up the monthly repayments rather than default on your credit card debts and end up with bad credit, then for some people a debt consolidation mortgage can be the best solution.

Common questions arising from debt from secured loans are the following:

• Long and short term credit - how can debt from secured loans affect my credit rating?
• How do I prevent debt from secured loans from affecting my dependants?
• I don't want to become bankrupt. Can I prevent debt from secured loans causing this?
• If I consolidate my debt from secured loans, would that be a wise move?
• Now that we have the debt from secured loans, can I still open a bank account?

Please contact the advice team on 0800 074 6918. The advice team will be able to provide callers with the information and guidance to determine if their debt from secured loans can be solved.

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