Secured loans with mortgage arrears

How lenders typically treat it

A general guide to how the market behaves, not a promise about any lender. Criteria change and every case is assessed individually. See the lender criteria database for named lenders.

Can you get a secured loan with mortgage arrears?

Usually not, and this page will be direct about it because false hope is expensive. Specialist secured loan lenders are built to consider adverse credit: defaults, county court judgments, past IVAs and debt management plans are all within their normal range. Mortgage arrears are the exception. Nearly every lender's criteria require that the mortgage is up to date at the point of application and that there have been no missed mortgage payments in the last 12 months. Many extend that to 24 or 36 months, or allow at most one missed payment in that window provided it was caught up quickly.

The reason is structural rather than moral. A secured loan is a second charge, which means it sits behind your mortgage lender in the queue if the property is ever sold to repay debts. If the first charge lender is already dealing with missed payments, it may be moving towards possession, and a second charge lender would be lending into a property that might shortly be sold from under it. No amount of equity makes that attractive.

There is also the affordability test that every lender must apply under FCA rules. A homeowner who cannot currently meet the mortgage payment cannot, by definition, afford a second secured payment on top of it, whatever the consolidation might save on cards and loans. A lender that ignored that would be lending irresponsibly, and a broker that arranged it would be doing you harm. So the honest answer is that a secured loan is a tool for after the arrears are dealt with, not a way of dealing with them.

Why do lenders treat mortgage arrears as worse than defaults or CCJs?

Because the mortgage is the one payment that tells a lender how you will treat a debt secured on your home. A defaulted credit card says something about unsecured borrowing under pressure. A county court judgment says a creditor was not paid. Neither says whether you will prioritise the roof over your head when money is tight. The mortgage record answers that question directly, and a secured loan lender is about to become the second creditor secured on the same roof.

Lenders also know that mortgage arrears are usually the last thing to go, not the first. Most households in difficulty stop paying cards and loans before they stop paying the mortgage, so by the time the mortgage is behind the budget has typically been under strain for some time. That is why lenders that will consider a year-old default at 80% loan to value will not consider a year-old missed mortgage payment at all, and why those that consider older arrears do so at 60% to 65%.

Finally, they check. The credit file shows arrears as a status of one, two or three months behind for each month of the account, but lenders do not rely on that alone. They ask for a 12-month mortgage statement, or write to your mortgage lender for a reference confirming the balance, the monthly payment and the payment history. Any arrangement to pay, capitalisation of arrears or payment holiday will show. It helps to know the lender will see the full picture, and to explain it before they ask.

The one useful consequence is that the record also shows recovery. A statement with 12 or 24 months of full payments after a bad patch is evidence in your favour, and it is the only evidence that reopens the market.

When will older, cleared mortgage arrears be considered?

The market reopens gradually. In the first 12 months after the arrears were cleared, it is close to shut: a very small number of lenders might consider a single missed payment that was caught up the following month, at low loan to value and a high rate, and most will not. Between 12 and 24 months, a small group of specialist lenders will consider arrears that were no worse than one or two months behind at their worst, provided every payment since has been made on time and the rest of the credit file is stable. Combined loan to value is commonly capped at 60% to 65%. Beyond 24 to 36 months, more lenders come into view, usually still a tier or two below clean-credit pricing.

Three things shape where you sit within that. The first is severity: one month behind for one month reads very differently from three months behind for six. The second is what else was happening; arrears alongside defaults and a CCJ suggest a wider collapse, arrears alone suggest a specific event, such as a gap between jobs, that has since passed. The third is equity. On a £280,000 home with a £150,000 mortgage, a 65% cap allows up to £32,000 of secured borrowing; with a £190,000 mortgage on the same home it allows nothing at all.

Our lender criteria database lists each lender's arrears policy alongside its other adverse credit rules. Because those policies are narrow, this is one situation where a broker earns their fee: a misplaced application adds a search to your file for no gain.

What should you do first if your mortgage is in arrears?

Talk to your mortgage lender, today if you have not already. FCA rules require lenders to treat customers in arrears fairly, to consider your circumstances and to explore ways to help before taking possession action. The options they can offer include an arrangement to pay the arrears over time, a temporary reduction or deferral of payments, a switch to interest-only for a period, extending the term to lower the monthly payment, or adding the arrears to the balance so the account shows as up to date. Which of these fits depends on your situation, and none of them are available if you do not ask.

Take free, impartial debt advice alongside that conversation, not after it. MoneyHelper, StepChange and Citizens Advice all deal with mortgage arrears every day, will help you build a budget, and can speak to your lender on your behalf. In England and Wales, the Breathing Space scheme, applied for through a debt adviser, pauses most creditor action for 60 days while a plan is put together. If you receive certain benefits, Support for Mortgage Interest from the Department for Work and Pensions may cover some of the interest as a repayable loan. GOV.UK has details of both.

Then protect the mortgage above everything else. Cards and loans can be renegotiated, placed in a debt management plan or, in the last resort, defaulted on without losing your home. The mortgage cannot. If you have to choose what to pay, pay the mortgage first, and let the debt adviser deal with the rest.

Once the arrears are cleared and the account has run cleanly for 12 months, the question of a secured loan to consolidate what is left becomes realistic. Before then it is not, and a lender or broker who says otherwise is not acting in your interest.

What would a secured loan cost once your mortgage record is clean?

If you reach the point where a lender will consider you, expect the rate to sit at the top of the adverse range and the loan to value to be low. The example below uses the fixed illustrative secured loan rate used across this site. A homeowner with historic mortgage arrears should treat it as the floor rather than the likely figure.

The monthly cost of £20,000 of unsecured debt falls from £532 to £190, and the total repaid over 15 years is £34,196, well above the amount borrowed because the balance runs so much longer. At an arrears-tier rate the saving shrinks and the total rises. Whether that trade is worth making is a question for after the mortgage record is clean, and with a clear budget in front of you.

The warning that belongs on every secured loan page belongs here twice. A secured loan is secured on your home, and if you do not keep up the repayments your home may be repossessed. Adding a second secured payment to a budget that has only just recovered is how the pressure returns. If the new payment only works when nothing goes wrong, the answer is free debt advice, not a loan.

What improves your chances

• Bring the mortgage fully up to date, or agree an arrangement with your lender and complete it; nothing else counts until this is done.
• Build 12 months of full, on-time mortgage payments after the arrears are cleared, and keep the statement that proves it.
• Check your credit files show the arrears correctly, with the right months and the account now marked up to date.
• Keep every other commitment paid on time in the same period; arrears alongside new defaults close the few doors that exist.
• Reduce the unsecured balances where you can in the meantime, so the eventual loan is smaller and fits a lower loan to value.
• Get free debt advice first and take the budget you build to the adviser, so any application is placed with a lender whose arrears policy fits.

Alternatives worth considering

While the mortgage is in arrears, the alternatives are not other loans; they are the forbearance options your mortgage lender must consider, a budget built with a free debt adviser, and where the unsecured debts are unmanageable, a debt management plan or an IVA that protects the home while you deal with them. Our comparison of consolidation and a debt management plan explains the difference. Once the mortgage has run cleanly for a year or more, a remortgage with an adverse credit lender may be possible if your deal has ended, and our remortgage with bad credit page sets out what that involves. Our guide to being declined for further borrowing covers the other routes.