What happens if you can't pay your mortgage?

Missing a mortgage payment is serious, but it does not lead immediately to repossession. There is a defined process, and FCA rules place obligations on lenders to consider your circumstances and offer options before taking legal action. The most important thing is to contact your lender as early as possible.

What lenders must do: MCOB rules

The FCA's Mortgage Conduct of Business (MCOB) rules require lenders to treat borrowers in arrears fairly and consider forbearance (temporary help) before initiating legal proceedings. This means lenders must:

• Give you reasonable time to make up missed payments before charging fees
• Consider whether to switch you to interest-only temporarily, extend your term, or defer payments
• Liaise with you and point you to free debt advice services
• Only repossess as a last resort when all other options have been exhausted

Payment holidays

Most lenders allow payment holidays — periods where you temporarily reduce or stop payments — subject to application and approval. These are typically available for up to 6 months, though this depends on the lender and your mortgage terms.

Importantly: unpaid interest during a payment holiday does not disappear. It is added to the outstanding balance (capitalised), increasing the total debt and future monthly payments. A payment holiday is a deferral, not a waiver.

Options lenders typically offer

• Payment holiday — defer payments for a period; interest capitalises
• Reduce to interest-only — pay just the interest temporarily, no capital repayment
• Extend the mortgage term — spread remaining balance over a longer period to reduce monthly payment (increases total interest)
• Capitalise arrears — add arrears to outstanding balance and restart normal payments
• Arrange a repayment plan — pay a slightly higher amount each month to clear arrears over time

Support for Mortgage Interest (SMI)

If you are receiving Universal Credit, Income-based Jobseeker's Allowance, Income Support, Income-related Employment and Support Allowance, or Pension Credit, you may be eligible for Support for Mortgage Interest (SMI). SMI provides a loan from the government to cover the interest portion of your mortgage payments. It is a loan, not a grant — it is secured against your property and must be repaid when the property is sold or transferred. Details and application are through the Department for Work and Pensions (gov.uk/support-for-mortgage-interest).

The repossession process

Repossession requires a court order. A lender cannot take possession of your property simply because you have missed payments. The legal process typically involves:

• Written notice of arrears and formal demand letters
• Evidence that the lender has considered forbearance (required before court action)
• A possession claim filed in court (you will receive notice and can attend)
• A court hearing — where you can present your circumstances and any repayment arrangement
• If the court grants a possession order, it may be suspended (giving you time to repay arrears) or absolute