Mortgage | Property Investment | Finance Guide

Not all debts are the same. Some are simply more important than others, which is why they’re called ‘priority debts’. That doesn’t mean the other debts (which are actually called ‘non-priority debts’) aren’t important – but it’s important to understand that the consequences of falling behind on those debts are less serious.

A mortgage, for instance, is a priority debt. Fall behind on your payments and you could end up losing your home as a result – a consequence that’s clearly much more severe than being taken to court because you’ve not paid a non-priority debt like a credit card or overdraft.

What debts does a debt management plan cover?

A debt management plan will directly cover a borrower’s non-priority debts (e.g. credit cards, overdrafts, unsecured loans & catalogue debts). It won’t directly cover their priority debts, but it can still help them make sure they can pay them.

How? Debt management involves negotiating with those non-priority creditors, telling them you can’t afford to keep up with your payments to them, and asking them to accept lower payments.

Those lower payments would be based on what you can afford after you’ve accounted for all your essential expenses (not just your mortgage payments, but also secured loan payments, child maintenance payments, CCJs (County Court Judgments), utility bills and all the other expenses you really cannot avoid paying).

In other words, a debt management plan might only address your non-priority payments directly, but it can make sure you have enough to make all your payments to your priority debts – like your mortgage – as well.

What about my priority debts?

Having said that, it’s not necessarily your non-priority debts that are the problem. If you can’t keep up with all your financial commitments, it could be because your mortgage payments are simply too high. This could be because your income has fallen, or because your expenses have risen – possibly because you’re on a variable-rate / tracker mortgage and the Bank of England’s base rate has gone up, taking the cost of your monthly mortgage payments up with it.

If this is the case, you really need to talk to a mortgage expert and find out what your options could be.

If you think the issues you’re facing are going to be temporary, there may be a short-term solution to your problems with your mortgage payments. Your lender may, for example, give you a short ‘payment holiday’ – a period of time in which you’d make no mortgage payments at all – to give you a chance to get your finances back under control. Just bear in mind that this can have some long-term consequences, so it’s very important that your mortgage expert explains them to you.

If it looks like your issues are longer-term, taking a payment holiday would probably just be delaying the problems you’re facing. Again, talk to a mortgage expert. They might advise you to look into remortgaging over a longer term – arranging to repay your mortgage over 25 years, for example, rather than the 15 left on your current deal. This is just one potential idea: you’d need to get some one-to-one advice to find out what your options might be, and what the consequences could be if you went ahead with one of them.