Mortgage calculator: is it better to rent or buy?

Homeowners in danger of falling behind on their mortgage repayments should take action immediately.

With unemployment levels soaring, more than half a million people will get into arrears on their mortgage this year, according to the Council of Mortgage Lenders. However, a few simple steps can help homeowners take control of the situation.

What not to do

1. Do not ignore your debt problems. Sit down a draw a detailed budget of your exact incomings and outgoings, including debt repayments. Think of ways to minimise expenditure and ways to maximise your income – for example, are you claiming all the benefits to which you are entitled? If you have recently been made unemployed, read our guide to benefits and redundancy rights.

2. Do not to stop paying your mortgage altogether. Continuing to pay what you can on a regular basis will help you reach an agreement with your lender.

3. Do not send back the keys and walk away. You are still responsible for the debt on the property.

4. Do not enter a sale and leaseback scheme without advice. David Harker of Citizens Advice says: "These schemes can be misleading and are not yet regulated. If it seems too good to be true it probably is."

What to do

1. Contact your lender – the earlier the better – to find a repayment solution. Your lender may be able to lengthen the mortgage term, add your arrears to the outstanding debt, switch to an interest only basis, temporarily reduce your payments, or change the method and date of payment.

2. Get free, independent debt advice. Organisations like Citizens Advice, Shelter, and National Debtline can help you manage your debts and negotiate with your lender.

3. Check if you are eligible for assistance. The Government’s Mortgage Rescue Scheme may allow you to either sell part of your home in a shared equity deal to a housing association, in order to reduce mortgage repayments; or allow you to sell the entire home outright to a housing association and pay subsidised rent to remain in the property. Read our Q&A on the scheme.

You should also check if your mortgage repayments are covered by any insurance policies you may have taken out.

4. Attend court. Borrowers who attend possession proceedings are more likely to reach an agreement to stay in their homes. Remember, the court is independent to make sure a fair decision is reached.

How to stay out of trouble

1. Overpay if you can afford it. If you are benefiting from lower mortgage rates, you could consider overpaying each month, though it may make sense to pay off any more expensive debts such as credit cards first.

Overpaying your mortgage will improve your equity position, reduce your interest payments and can shorten the length of your mortgage. But overpaying one month doesn’t mean that a payment can be missed the next.

2. If you are paying interest-only, switch to a repayment mortgage. With house prices falling, those who took out high loan-to-value mortgages may find themselves in negative equity, where a homeowner owes more than the property is worth, so it is important to try to pay down loans as much as possible. Remember to check if there are any charges that may be associated with this first.

3. Prioritise your debts. If you do not pay your mortgage you risk losing your home, so pay mortgage and utility bills before unsecured debts like credit cards.

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Five websites

Shelter

National Debtline

Citizens Advice

Consumer Credit Counselling Service

Payplan