The temptation for anyone in your situation is to do simply nothing, hoping that a new day will bring new hope. That may well be true and there is always the hope that you will gain new employment in the near future. But it is likely in today’s employment market that it will take some time for you to obtain another job and by then your mortgage will be seriously in arrears. But you have made an important first step – realising that you can’t afford to pay the mortgage, and that you need to do something.

The first thing you should do is talk to your bank about your situation. That can be a difficult first step for someone in your situation and often people are not willing to acknowledge that they are in a difficult financial situation. You should be aware also that the missed mortgage payments will not go unnoticed. Most of the banks have what one has called, “triggers to alert staff to people who miss more than one mortgage payment”. By you making contact the bank will have confidence that it can allow you to maintain some control of the situation rather than the bank controlling it through the sale of your family home.

You may not have a direct point of contact with your bank, especially if the loan was arranged through a mortgage broker or has been in place for some time. Most of the bank websites have a lot of information on obtaining a new loan but not much on what to do if you get into problems with your loans. The credit departments in the banks we have spoken to suggest that if you have no “relationship manager”, who looks after your banking affairs, then you should ring the bank’s general number and the bank will arrange for someone to contact you to discuss your problem.

The options that the bank will look at with you could include:

• Changing the timing and frequency of payments;
• Extending the term of the mortgage so that you have smaller payments to make;
• Changing the repayments to interest only until you have paid employment;
• Capitalising your interest payments till you get employment. This means that you pay nothing but the payments are added to the loan.

There is no guarantee of course that the bank will do any of these especially if it thinks that your financial difficulties will be long term.

You can of course remind the bank that banks promised the Government to relax the mortgage repayment conditions for struggling home owners in return for the Government guaranteeing their overseas debts. This was one of the last things that the Labour Government did on 3 November 2008. There has been no mention of it since and whether the banks have really done anything different with their borrowers is not exactly clear. The headline at least was clear. The banks said, “We will help struggling borrowers”.

There will come a time sooner or later when the bank will decide to sell your home if you cannot pay the mortgage. After all, the purpose of the mortgage is to give the bank security over your home so that if you cannot pay the mortgage, it can sell it to recover its money. Before the bank can take any action to sell the land it must serve on you a notice under Section 119 of the Property Law Act 2007. This notice is to specify the defaults you have made under the mortgage and gives you a period of not less than 20 working days to remedy the defaults after you receive it.

By the time that the bank has given you this default notice, you should have decided whether you can realistically afford to stay in your home. This can be a painful decision and you should discuss this with suitable friends, budget advisor or your solicitor. If you can you should control the sale process rather than letting the bank control it by selling the house under what is usually called a mortgagee sale. Generally the credit departments of the banks will allow a home owner to sell the land using agents as long as they are kept supplied with details of sale process and are convinced that you are being realistic in your attempts to actually sell the home. The reason why you should maintain control of the sale process is quite simple. Your bank, if they sell it, will advertise it as a “mortgagee sale” and that will mean the bargain hunters will be looking at the sale. The bank do not need to auction a property and can simply sell the home by a normal sale contract with an interested purchaser. The bank may sell it for a price which is lower than the price you would accept and may even accept an offer which would be insufficient to repay your mortgage. That would leave you owing the bank money and possible bankruptcy.

You should be aware that you have what is called an “equity of redemption” which means that you can, as the owner of the property, sell it as long as the sale price is sufficient to repay the mortgage. If the sale price is not enough to repay the mortgage then you may have difficulties persuading the bank to release its mortgage unless you can convince them that you are selling at market value. If the bank has already entered into a contract to sell the home then obviously you have lost the opportunity yourself to sell it and you will be bound by the bank’s contract and will have to give up possession to the new buyer.

We would again emphasise that you should try to be proactive at this difficult time and if you can, keep control of the situation. The temptation is to ignore the letters of demand which are coming into the letterbox from people that you owe money to as they are too difficult to face. It is often helpful to get support from friends or advisors who can help negotiate you through what is a crisis point in your life.

Please contact David Asbury at our city office if you think mortgagee sales may be relevant to you.