Will redundancy affect my mortgage?

Redundancy can be a really worrying time. If you lose your job, it may mean you struggle to keep up with your mortgage payments. 

Whether you’re currently out of a job, redundancy is looming, or you just want to prepare for the worst, it’s important to act quickly so you’re in the best position to carry on paying your mortgage. 

Prioritise your mortgage and bills

So long as you have worked for your employer for two years or more, you will be able to get statutory redundancy pay. It’s important to note that if you’ve been working there for less than two years, then there’s a chance you won’t receive redundancy pay. 

Your employer may have their own redundancy policy in place, and they might offer you more than the statutory amount – but they can’t offer you less. Some employers may pay even if you’ve worked for them for less than two years. 

You can figure out how much statutory redundancy pay you’re entitled to on the UK Government website.  

If you receive redundancy pay, it’s important to sit down with a calculator and a list of your expected outgoings. Budget carefully to account for all your essential bills, including your mortgage.  

It may be worth curbing non-essential spending while you look for a new job, so you’ll have more cash set aside for mortgage payments and other bills. 

Do you have mortgage insurance?

You may have already signed up for Mortgage Payment Protection Insurance (MPPI). If so, your payments should be protected, as the insurer will often cover your mortgage if you’re made redundant, at least until you find a new job. 

It’s important to check the specifics of your policy. In some cases, redundancy insurance can cover up to 125% of your mortgage costs, which can be helpful for managing not only mortgage payments but also other essential bills.  It’s worth noting that most policies have an upper payout limit of £1,000-£2,000 per month. 

Keep in mind that waiting periods before you can claim are common — typically between one and three months. You might also want to look into ‘back-to-day-one’ policies, which backdate the cover to your first day off work, providing additional protection. 

Another option that could protect your other outgoings is Income Protection Insurance. Unlike MPPI, Income Protection Insurance covers a broader range of financial commitments, not just your mortgage.  

If you're planning for future uncertainties, it might be worth considering MPPI or Income Protection. However, if you’re already facing redundancy or it's approaching, you likely won’t be able to take out new insurance policies.  

It’s worth noting that Payment Protection Insurance (PPI) is no longer available to purchase as a new policy in the UK following regulatory changes. If you still have an active PPI policy, it may cover certain loan or credit card repayments. 

Restrictions on redundancy cover

It's also crucial to understand the restrictions tied to redundancy insurance. Some policies won’t pay out if: 

• You’ve taken voluntary redundancy 
• You’ve been dismissed for misconduct 
• Redundancies had already been announced at your company before you purchased the insurance 

Additionally, part-time, temporary, and self-employed workers may struggle to qualify for certain types of cover. If you're in one of these categories, you might want to explore other forms of protection, such as Income Protection Insurance. 

Consider downsizing

If you’ve been job hunting but can’t find a position that matches your previous income, you may want to consider downsizing. 

This can be a difficult decision, especially if you’ve invested a lot of time and care into your home. However, if your home is larger than you need, selling it could help you free up some cash and reduce or eliminate your mortgage payments. 

Downsizing can be particularly effective if you live in an area that’s popular with buyers and where you’re likely to get a quick sale. Plus, moving to a different area might open up new job opportunities that you hadn’t previously considered. 

Moving is a big step, so don’t rush into it. Even if you downsize, you’ll need to account for costs like solicitor’s fees, stamp duty thresholds, and moving costs. If your current home is where you see yourself long-term, it may be worth widening your job search or exploring temporary or part-time positions to keep up with your mortgage payments. 

Speak to your mortgage lender if you think you might fall behind

This is crucial. If you’re unsure whether you can keep up with your mortgage payments – for example, if your redundancy pay isn’t enough – you must speak to your lender. 

Lenders are typically open to making arrangements to help you. Many lenders offer payment holidays for customers who’ve maintained good payment histories and have low loan-to-value ratios. However, each lender has its own criteria, and it’s essential to check whether you qualify. 

Keep in mind that while on a mortgage holiday, interest still accrues on your balance, which could lead to slightly higher payments once you resume.  

Even if you’ve struggled with repayments in the past, it’s still important to talk to your lender. They will try to work with you to find a solution. 

Lastly, if you’ve worked for your employer for less than two years, but more than a month, they’re required to give you at least one week’s notice if they make you redundant. If you have no savings, speak to your lender as soon as possible to avoid falling behind.