What are the consequences of missing payments for my second mortgage?

What happens if I miss payments on my second mortgage?

If you can’t keep up with payments on a second mortgage (sometimes known as a secured loan), in the very worse case scenario, you risk having your home being repossessed. The risk of this happening is explained before you take out any type of secured loan. But, if you’re in a situation where you’re likely to miss repayments, try not to panic.

What to do if you’re about to miss repayments on your loan

It’s vital that you don’t just put your head in the sand and let your situation get out of control. Instead, take action:

One. Try to increase your income.

Could you get a better paid job or take on extra paid hours at your current workplace? Or perhaps work more than one job? With more money come in you have more chance of repaying your debts.

Two. Work out your personal budget.

The National Debtline has a template budget that should make this easy for you. Get all the details of all your monthly payments at hand, from gas and electric bills to all your debts and think about how much you pay out on everything from transport to debt repayments.

Three. Deal with your priority debts.

Once you’ve worked out your income and outgoings you’ll need to work out which ones you need to start paying off first. Your priority debts include:

  • Mortgage, rent or secure loans (sometimes known as a second mortgage)
  • Council tax
  • Utilities: gas, electricity and water
  • Other fuel, such as oil, logs or coal
  • TV licence​
  • County Court judgments
  • Magistrates’ court fines and parking fines
  • Child maintenance
  • Magistrates court fines (for example TV licence fines or criminal fines)
  • Child maintenance
  • Arrears on any of the bills listed above

You’ll need to make sure you pay off ‘priority debts’ first because these are the ones that could lead to you losing your house or ending up bankrupt.

One such priority debt is a second mortgage.

As second mortgages are secured against your house, failure to keep up with payments could result in repossession. Your second mortgage lender doesn’t have to get permission from the lender that gave you your first or main mortgage before taking steps to repossess your home.

If you miss a payment on a priority debt, what happens?

If you miss a payment(s), your second mortgage lender will contact you. If over a period of months your payments are not made the lender will send you a default notice.

This notice will include details of the missed payments and a date that you must repay the outstanding debt by. This date will be at least a fortnight after the date of the notice.

If you don’t make a repayment by this date, the lender can then take court action. If the lender decides to take action, the court will decide if a repossession order for your home should be made.

However, to minimise the chances of any of this happening, if you find yourself unable or struggling to make a payment, contact your lender as soon as you can and seek a resolution.

You may be able to negotiate a deal with the lender in order to vary (change) the terms of the loan. This might seem scary but it’s important to remember that lenders are people too and will only repossess in a worst-case scenario.

Your secured loan could be moved to a different, lower rate, or allowed to pay less over a longer period of time so that can work within your finances.

It’s important when you speak to your lender as soon as possible to let them know that you’re taking the issue seriously and are getting help with the problem. This can include speaking to debt management services and creating a budget for yourself (see above).

Your lender should try to help you, but they can’t do that if you don’t tell them that you’re having issues with being able to make your repayments.

The longer you do nothing, the worse the consequences will be.

 

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