Why this happens and why it matters
Struggling with a debt consolidation mortgage is particularly distressing because the consolidation was supposed to make things easier. There are several reasons why borrowers find themselves in difficulty after consolidating. Interest rates may have increased if you are on a variable rate, pushing payments higher than expected. Your income may have decreased through redundancy, illness, or reduced working hours. Additional debts may have accumulated on top of the consolidation mortgage, recreating the problem the consolidation was meant to solve. Or the consolidation itself may have been poorly structured, with payments that were never truly affordable.
Whatever the reason, the most important thing is to take action as early as possible. The earlier you address payment difficulties, the more options are available and the better the outcomes tend to be. Ignoring the problem allows arrears to build, interest to accumulate, and the situation to worsen rapidly.
Contact your lender immediately
Your first step should be to contact your mortgage lender directly. This feels daunting for many people, but lenders are required by the FCA to treat borrowers in financial difficulty fairly and sympathetically. They have dedicated teams for this purpose and a range of tools available to help.
When you contact your lender, explain your situation honestly. Be prepared to discuss what has changed since you took out the mortgage, what your current income and expenditure look like, and whether the difficulty is temporary or likely to be ongoing. The more information you provide, the better equipped the lender is to offer appropriate support.
Options your lender may offer
Payment holiday
A payment holiday allows you to temporarily stop or reduce your mortgage payments for a set period, usually one to three months. Interest continues to accrue during the holiday, increasing your total debt, but it provides immediate breathing room. Payment holidays are most suitable for temporary difficulties where you expect to resume normal payments shortly.
Term extension
Extending the mortgage term reduces your monthly payment by spreading the remaining balance over a longer period. Moving from a 15-year remaining term to a 25-year term, for example, could significantly reduce monthly payments. The trade-off is that you pay more interest over the longer term, but if the alternative is arrears and potential repossession, a term extension can be the most practical solution.
Switch to interest-only
Temporarily or permanently switching to interest-only payments reduces your monthly obligation to just the interest charge, with no capital repayment. This provides the maximum possible payment reduction but means your mortgage balance is not being reduced. Lenders may agree to temporary interest-only periods as a short-term measure while you address the underlying financial difficulty.
Capitalisation of arrears
If you have already fallen into arrears, the lender may agree to add the arrears to the mortgage balance. This clears the arrears position and returns your account to a normal status, with the arrears spread over the remaining term. This does not reduce your payments but prevents the arrears from escalating and buys time to stabilise your finances.
Reduced payment arrangement
Your lender may agree to accept reduced payments for a fixed period while you work through a financial difficulty. This is typically used for temporary situations where you can demonstrate that your circumstances will improve within a reasonable timeframe.
Seek free debt advice
Free, impartial debt advice is available from several organisations in the UK. These services are entirely free and are funded by the financial services industry through levies. They can help you assess your full financial position, negotiate with your lender on your behalf, explore all available options, and create a sustainable plan to manage your finances going forward.
Key organisations that provide free mortgage debt advice include StepChange Debt Charity, Citizens Advice, the National Debtline, and the Money and Pensions Service (MoneyHelper). All of these services are confidential and will not judge your circumstances.
Your rights as a borrower in difficulty
The FCA's Mortgage Conduct of Business rules (MCOB) provide significant protections for borrowers in financial difficulty. Your lender is required to treat you fairly and with forbearance, consider all reasonable options before pursuing repossession, not pursue repossession unless all other reasonable options have been explored, give you adequate time and opportunity to address the situation, and provide clear information about the consequences of any action they take.
Repossession is genuinely a last resort. Lenders do not want to repossess properties. It is expensive, time-consuming, and often results in the lender recovering less than the outstanding debt. They would much rather find a way to help you maintain payments and keep your home.
What happens if you accumulate new debt after consolidation
One of the most challenging situations is when a borrower consolidates debt into their mortgage and then accumulates new unsecured debt on top. This can leave you with a larger mortgage and fresh credit card or loan balances, effectively doubling the problem.
If this has happened to you, it is important to address the root cause of the debt accumulation. If spending habits have not changed, further consolidation is unlikely to solve the underlying problem and may not be available, as lenders are cautious about repeat consolidators. Seek debt advice to develop a comprehensive plan that addresses both the mortgage and the new debts.
When selling might be the right option
In some cases, selling your property and downsizing or moving to rented accommodation may be the most practical solution. This is particularly worth considering if your mortgage has substantial equity, meaning you would clear the mortgage and have funds remaining. If the property is no longer suitable for your circumstances, for example if it is too large or too expensive to maintain. Or if your financial situation has fundamentally changed in a way that makes the current mortgage permanently unaffordable.
Selling is a significant decision with major practical and emotional implications. It should not be rushed, and free debt advice can help you assess whether it is genuinely the best option for your circumstances.
Avoiding repossession
Even if you have fallen significantly behind on payments, repossession is not inevitable. The legal process for repossession in England and Wales requires the lender to obtain a court order. Before granting a possession order, the court will consider whether the lender has explored all alternatives, whether you have a reasonable prospect of paying off the arrears, and whether there are circumstances that make immediate possession inappropriate.
If you attend the court hearing, or better still, attend with a free debt adviser, the court is much more likely to give you additional time and impose conditions that allow you to remain in your home while addressing the arrears. Never ignore a court summons for a possession hearing.
Getting help now
If you are struggling with your debt consolidation mortgage, contact your lender and seek free debt advice as soon as possible. The sooner you act, the more options you will have. Nesto can also match you with an FCA-regulated adviser who can assess your options, including remortgaging to a more affordable product. The matching service is free with no obligation.