Capitalising arrears means your lender agreed to add the amount you owed to your outstanding mortgage balance, rather than you repaying it separately on top of your usual payment. It is one of the forbearance options a lender may offer, and it can make monthly payments more manageable in the short term, but it increases what you owe and can extend how long it takes to repay. Whether it affects a future remortgage depends on how it was recorded and how your payments have looked since.
This page explains what capitalisation actually changes, how it may show on your credit file, and what to check before you remortgage. If you are still deciding how to deal with current arrears, see our page on currently in arrears first.
On this page
This page covers
- Credit issue
- Mortgage arrearsUsually stays on your credit file for 6 years from the date recorded.
In short
- Capitalising arrears adds the amount owed to your mortgage balance instead of you repaying it separately.
- It usually increases your monthly payment or extends your term, and increases the total interest paid.
- The arrears period itself is still likely to be recorded, even once the amount has been added to your balance.
- A capitalisation agreement should always be confirmed in writing by your lender.
Your home may be repossessed if you do not keep up repayments on your mortgage. Think carefully before securing other debts against your home. Borrowing over a longer term can mean paying back more in total.
What does capitalising arrears actually mean?
When your lender capitalises arrears, the amount you were behind stops being a separate debt on top of your mortgage and becomes part of the mortgage balance itself. Your payments are then recalculated over the remaining term, based on the new, higher balance. This can lower the extra amount you were paying to catch up, but it means paying interest on the arrears for as long as the mortgage runs, which usually increases the total cost over the life of the loan.
A lender does not have to offer this, and it is usually agreed after a conversation about what forbearance might help, alongside options such as a temporary reduction, an extended term, or a period on interest-only. See our main page on mortgage arrears for how those options compare.
How does it change your loan to value and monthly payment?
Because the arrears are added to the balance, your outstanding mortgage becomes larger relative to your property’s value, which pushes up your loan to value. This matters for a future remortgage, since a higher LTV can narrow the range of lenders and deals available, particularly alongside a history of arrears.
| What changes | What it means later |
|---|---|
| Outstanding balance | Increases by the amount capitalised |
| Loan to value | Rises, since the balance has grown against the same property value |
| Monthly payment or term | Recalculated, often as a small increase spread over the remaining term |
| Total interest over the mortgage | Increases, since interest is charged on the capitalised amount too |
General illustration only. The exact figures depend on your lender, your term and your interest rate.
Does capitalising the arrears remove them from your credit file?
Capitalisation changes how the debt is structured, but it does not rewrite history. The months you were behind were recorded at the time, and those entries are still likely to remain on your file for 6 years from when they were recorded. What a lender is more likely to notice going forward is that the balance increased and that your payments have been on time since the agreement began.
It is worth asking your lender exactly how the capitalisation was reported, and checking your credit report to see how the period shows. If anything looks wrong or unclear, you can raise it with the credit reference agency.
What should you check before you remortgage?
- The exact amount that was capitalised and when the agreement started
- Your current mortgage balance, term remaining and monthly payment
- How the arrears period shows on your credit file now
- A current estimate of your property’s value, to work out your loan to value
- Whether you have kept up every payment since the capitalisation was agreed
Adding arrears to your balance means paying interest on them for longer, and it is secured on your home like the rest of the mortgage. If the underlying difficulty has not fully resolved, speak to a free debt adviser before taking on further borrowing.
What may affect options after capitalised arrears
| Factor | Why it matters |
|---|---|
| Size of the capitalised amount | A larger amount added to the balance has a bigger effect on loan to value and monthly cost. |
| How the arrears period is recorded | The months you were behind are usually still visible for 6 years, separate from the capitalisation. |
| Payment record since | A clean record since the agreement began is the clearest evidence the arrangement has worked. |
| Loan to value after capitalisation | A higher LTV following capitalisation can narrow the range of lenders who may consider the case. |
| Remaining term | How much of the mortgage term is left affects the new payment and total interest. |
| Other credit issues | Any related default, CCJ or missed payment marker from the same period may also be considered. |
| Income and affordability | The new, higher payment still needs to be affordable under a standard assessment. |
These are general points, not lender rules. Each lender sets and changes its own criteria.
Information an adviser may ask for
You don’t need all of this to make an enquiry. It helps to know where to find it, because an adviser is likely to ask about most of it.
- Written confirmation of the capitalisation agreement from your lender
- Recent mortgage statements showing the balance before and after
- Your current monthly payment and remaining term
- A current estimate of your property’s value
- Proof of your income and regular outgoings
- Details of any other credit issues from the same period
Frequently asked questions
Does capitalising arrears count as taking out new borrowing?
It restructures your existing mortgage rather than creating a new loan, but it does increase the amount you owe and the interest charged over time. It is still worth understanding fully before agreeing to it.
Will capitalised arrears still show if I remortgage with a different lender?
A new lender is likely to see the arrears period on your credit file, since capitalising the amount does not usually remove those entries. They may also ask your current lender for a reference or statement history.
Can arrears be capitalised more than once?
It depends on your lender and your circumstances. Repeated capitalisation can be a sign that the underlying difficulty has not been resolved, so it is worth getting free debt advice alongside speaking to your lender.
Does capitalisation affect how much I can borrow later?
It can, because it increases your loan to value on your existing mortgage. If you want to borrow more later, a lower loan to value generally widens your options, so paying down the balance over time can help.