Adam Isaacs, Tuesday November 13, 2007

Banking watchdogs have today warned that one in five homeowners are struggling to meet their monthly mortgage repayments. Here's how to make sure you're not one of them

The effects of the credit crunch and steep rises in the cost of household bills are taking their toll on hard-pressed homeowners, according to a new figures released today by City watchdog the Financial Services Authority (FSA).

The FSA poll reveals that one in five mortgage holders are worried about meeting their repayments in the next 12 months - and that quarter of those homeowners questioned have no plans for covering the shortfall.

The survey was small - with just 573 mortgage holders supplying answers - but it provides yet another sign that the days of cheap and easy credit are coming to an end.

Monthly mortgage repayments are now swallowing the biggest share of take-home pay for 17 years, according to the Royal Institution of Chartered Surveyors (RICS). The situation has seen debt charities witness a surge in people asking for help over mortgage arrears in recent months.

If you think you're at risk of repossession, don't ignore the situation - there is action you can take:

 

Your first steps
Seek advice and help as soon as possible. Don't be tempted to think all your problems will go away if you don't dwell on them.

Talk to your bank about your situation - be honest and ask them what they can offer to help you through this difficult financial patch. Don't ignore their letters - your bank will be more receptive if you contact them swiftly rather than leaving it until they threaten to repossess your home.

See if you can take a mortgage holiday Certain deals allow you to take a break from your repayment schedule - which might be enough to get you through a tricky patch and back on a secure financial footing.

Consider re-mortgaging You might be able to secure a mortgage that reduces your payments or ties you to a fixed-rate deal, which gives you the security of fixed monthly repayments. Extending the length of your loan is also an option to consider. Speak to an independent financial adviser about what may help you.

Shop around! If your mortgage is coming to the end of its fixed-rate period, try to calculate how much your monthly repayments will increase by - then start looking at other deals in the market.

Find free advice Ignore TV adverts from firms promising to solve your debt problem by consolidating loans - get free help from charities such as the Consumer Credit Counselling Service (CCCS). They will help you set up a budget you can afford and enable you to prioritise your debt payments. A good rule of thumb is that your mortgage payments are top priority.

Steer clear of "mortgage rescue" companies These predatory firms promise to solve your debt problems by buying your home quickly with minimal fuss. They often pay as little as two-thirds of a property's true value. And sometimes - despite the promise that people will be able to live in their homes indefinitely - many homeowners find themselves signed up to unprotected, short-term tenancies that leave them in danger of being turfed-out on the streets.

Where to get free help
Citizens Advice offers free advice on a wide range of financial issues, including debt help. Find out where your local office is in the Yellow Pages or check out their website.

Consumer Credit Counselling Service (CCCS) provides expert debt advice for free. Don't consider paying an agency or company for the same service - instead call 0800 138 1111 (8am to 8pm Monday to Friday).