Much might depend on the equity you have in the property – but you should definitely get advice from the CAB. You need to advise both your mortgage lender and home loan company of your situation. Those who bury their heads in the sand and hope that the problems will go away, are those who are on fast track to repossession.
Depending on how long you paid council tax at the property, will to some extent determine the purchase discount that would have been offered. Even so, given that a discount is the prime reason for buying council property, you should have some equity in the property.
E.g. let’s assume that the property is worth £150K and you have an outstanding mortgage of £80K – then you have equity of £70K in the property. If you are fortunate to be in such a situation, your mortgage company might be willing to agree to an extended payment holiday. After all, the other option is to force the sale of the property – allowing them getting their money back. Allowing you to have a payment holiday will still allow them to get their money back (should everything workout or not), and then some – since your mortgage will increase by around 5% over the coming year (with no mortgage payments). You must get an agreement from your mortgage lender (not to pay the mortgage), otherwise additional fees will be incurred (a lot like not paying your credit card each month – but worse). The situation with the home improvement loan will have to be negotiated directly with the loan company – again they might be willing to re-schedule the debt with lower monthly payments, which can be managed with a reduced mortgage payment or payment holiday.