By Philip Ward, of Cumberland Building Society

Last updated 22:41, Friday, 05 September 2008

With no end in sight to the increases in costs of living, nobody needs to be reminded that times are getting tough financially. But what happens if you start getting into difficulties repaying your mortgage?

• Vist the Cumberland Building Society website

Don’t panic: If you start to struggle, your first priority is to deal with the bills that protect your home and any loans you have secured on it. As a mortgage is usually the biggest single outgoing each month, your first call should be to your mortgage lender

If you find yourself in this situation, you are not alone. Currently, there are more than 50,000 homeowners with arrears of six months or more.

However, don’t bury your head in the sand as this will not make the situation go away.

The sooner you seek help, the sooner you’ll be able to get back on track.

There are people who can talk you through your options who have seen it all before so you needn’t be embarrassed to speak to them.

If you start to struggle, your first priority is to deal with the bills that protect your home and any loans you have secured on it, (mortgage, insurance, utilities etc.) and those where you could end up in prison if you don’t pay, (council tax).

As a mortgage is usually the biggest single outgoing each month, your first call should be to your mortgage lender.

The way mortgage lenders deal with arrears varies but with all lenders you should be able to talk to someone who will review your finances with you.

This review should take into account your income and expenditure and provide you with options to help you resolve the situation.

These options can include: reducing payments for a short term – this will put you further behind with your mortgage but paying something usually helps in the eyes of the lender; changing the mortgage to interest only – another short-term option to reduce payments but you will still have to restart payments at some point in order to pay off the loan; extending the loan to reduce payments; consolidating your debts/arrears; switching your mortgage to a cheaper product.

If you want independent advice, you can speak to Citizens Advice and the Consumer Credit Counselling Service who can help people with all types of financial problems, not just mortgage arrears, and their services are free.

Be wary, however, of firms or organisations that offer debt consolidation or payment negotiation services, often through Individual Voluntary Arrangements (IVAs).

These firms often have very high fees which are added to the outstanding debt, and they may tie you into long-term payment plans.

In the most extreme cases, if you are unable to continue paying your mortgage then you may not be able to hold on to your home.

Your lender may give you time to sell the property yourself, which is usually preferable to handing the keys back or being repossessed, and if you are able to sell the property yourself you will remain in control of the process and get to decide what price you sell at.

Once the lender is paid off you get to keep the rest. If you hand the keys back or you are repossessed you may end up being liable for a significant amount more debt than you had to start with due to the costs incurred by the lender to dispose of the property.

• Phillip Ward is a marketing manager at the Cumberland Building Society. Visit the website at www.cumberland.co.uk.
• Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.