If you are in mortgage arrears, your mortgage lender will want you to clear them. If you don't do this, they will take action through the courts to get you evicted from your home (seek possession). This will allow them to sell the property and use the money from the sale to help pay off the debt.
However, if your lender knows that you are trying your best to stop the debt increasing, they might allow you more time to sort the problem out.
Depending on your circumstances, there may be several things you can do, but you must act quickly. You may be able to:
You will need to be able to keep up with payments on your current instalments, as well as make payments off the arrears. If your financial difficulties are only short-term, you could think about asking your mortgage lender if they will agree to cut down your monthly mortgage costs for a limited period of time, e.g. to take a payment holiday or switch from a repayment mortgage to an interest only mortgage.
Before you agree to make any changes to your mortgage, you should ask your lender if there will be any charge for this and how much this will be. If the charge seems very high, you should get advice.
Depending on the type of mortgage you have, you may be able to:
You will need to try and come to an agreement with your mortgage lender about how to pay off your arrears.
Before you do this, you should first work out how much you can afford to pay. Work out how much money you've got coming in and what your other outgoings are - including other debts.
You will also need to decide how to pay off the arrears. You may have several options for doing this, including:
Mortgage lenders have to follow a specific procedure (called a protocol) before they can take you to court for mortgage arrears. The protocol sets out a number of steps they should take before they consider court action. These steps include:
Once you have worked out a way of dealing with your mortgage arrears, you should contact your mortgage lender as soon as possible and make it an offer.
It is important that you put a detailed proposal to the lender rather than just ask it to offer you a solution. This is because a lender may not be fully aware of your circumstances or of the range of options available for dealing with your financial problems.
Write a letter to your mortgage lender, clearly setting out your offer. Your offer should be one which you can realistically keep to, and which will clear the arrears within the period of the mortgage. It should be based on how much you can afford to pay. Include a financial statement with your letter, which shows your mortgage lender how you have worked this out. Try and persuade your mortgage lender that accepting an offer worked out in this way is in both of your interests, because you are more likely to keep to it.
Your letter should also include the following information:
If the person you are dealing with at the mortgage company is not being helpful, it's worth trying to deal with someone who has more responsibility, for example, a supervisor or an arrears manager.
You should start to make regular payments, however small. Even if your lender doesn't accept the offer, it may help your case if you are taken to court later on.
If you are not happy with the way your lender deals with your case, you can make a complaint. Find out about your lender's internal complaints procedure. If this doesn't work, you can complain to the Financial Ombudsman Service. For more information about this service, visit Financial Ombudsman, or phone 0845 080 1800.
If you haven't been able to agree with your mortgage lender on how to pay off your arrears, they will probably take you to court and try and get possession of your property. If you argue your case in court, the judge (in Scotland, the sheriff) may allow you to stay in your property as long as you keep to an agreement to pay. If you are in this situation, you should get advice.
If you are in mortgage arrears, you should see if there are ways you could increase your income to help you deal with these and other debts.
You should make sure you're getting all the welfare benefits and tax credits you're entitled to. Some benefits, such as Income Support, income-related Employment and Support Allowance (ESA), Pension Credit or income-based Jobseeker's Allowance, entitle you to an allowance, which will pay some of your mortgage costs. You will need to make up any shortfall.
Other benefits that you may be able to claim include:
One option you may be considering to help you pay off your mortgage arrears is a mortgage rescue scheme, also known as buy back, sale and rent back or sale and lease back schemes.
These are schemes that offer to buy your property and rent it back to you.
This may look like a good way out of your mortgage problems because it allows you to pay off your debt while being able to stay in your home.
However, you need to be very careful about signing up to a mortgage rescue scheme because, in some cases, you could end up paying very high rent or even being evicted.
A mortgage rescue scheme may be the right option for you, as long as you check the terms and conditions of the scheme very carefully. You need to understand exactly what you are signing up to, and how this will affect your housing and financial situation in the long-term.
There are different types of mortgage rescue schemes. A scheme could be run by:
You should take extra care before signing up to a mortgage rescue scheme run by a private company or individual.
Things that you need to know about private mortgage rescue schemes include:
Some local authorities and housing associations also run mortgage rescue schemes, although there aren't many of them around. They often have strict rules about who can apply, so you may not qualify.
These schemes will allow you to remain in your home either as:
To find out more about mortgage rescue schemes run by local authorities and housing associations, ask your local authority.
If you aren't able to clear your arrears, the lender will commence repossession proceedings and a court will may grant your lender an order for possession which will eventually lead to you being evicted from your home. Your lender will ultimately sell the property and if they don't make enough from the sale to cover the money you owe on your mortgage, you will usually have to pay the difference.
If you can't find any other way of clearing your arrears, it would be better to try and sell the property yourself, rather than waiting for the lender to repossess the property and then sell it. This is because they are likely to get a lot less for it than you would, leaving you with a debt to pay. In addition to this, if the lender sells the property this will incur additional costs which will be deducted from any money made from selling the property, which will lead to you receiving less money once the mortgage, arrears, and court and legal costs have been deducted and in some cases may even lead to you still owing the lender money once the property is sold. Properties which have been repossessed often sell for a lot less. Also, lenders often sell at auctions where sale prices tend to be lower.
Selling the property yourself would give you a lump sum that you could use to pay off your mortgage, and which, if you have enough left over, you may also be able to use to pay off other debts.
Before you think about selling your property, you will need to:
Don't be tempted to just leave the property and hand back the keys to your mortgage lender unless you've sold the property or there is a court order to evict you. You won't gain anything by doing this. You will still be responsible for mortgage payments and buildings insurance until the property is sold, and will still have to make up any shortfall if the sale doesn't make enough to cover what you owe.
If your lender asks you to give up the keys, you don't have to do this. If your lender wants to repossess the property, they have to get a court order first.
If you do hand back your keys, you should wait until your lender has got a court order to evict you first.
Also, if you're thinking about applying to your local authority in England and Wales or the Housing Executive in Northern Ireland to be re-housed as homeless, don't hand back the keys without talking to them first and explaining your situation. Your local authority or the Housing Executive may consider you intentionally homeless and may not agree to re-house you. If you're in this situation, get advice.
If the arrears you owe are on a first mortgage, your lender will probably follow a standard procedure for recovering the arrears. The procedure will involve:
Even if your lender has applied for a warrant of possession in England and Wales, or for the enforcement of the possession order in Northern Ireland, you might still be able to come to an agreement that would allow you to avoid eviction (e.g. to allow you to sell the property). Also, in England and Wales, you might be able to ask the court to grant an order allowing you to stay in the property. In Northern Ireland you might be able to get the Enforcement of Judgments Office to delay the enforcement of the possession order by appealing any notices served on you by the Enforcement of Judgments Office., In some cases, you might be able get the lender to put the enforcement on hold to give you time to sell the property yourself or come to some arrangement to pay the arrears. See our 'Enforcement of judgments office' section for more information.
If you're in this position, you should get advice.
If the arrears you owe are on a first mortgage, there are a number of procedures the lender may use to get possession of the property then sell it. The procedures can involve:
Even if your lender has applied for a warrant to eject you, you might still be able to come to an agreement that would allow you to avoid eviction. Also, you might be able to ask the court to grant an order allowing you to stay in the property.
If you're in this position, you should get advice.
In some cases you can apply to the sheriff court to suspend the legal action being taken by the lender.
Whether or not you can apply to suspend the legal action may depend on the type of property you have the mortgage for and who lives in it as their sole and main residence. If you have the mortgage and the property is your sole or main residence you have the right to apply and so does your partner in most cases. You should get advice about your rights because you have to respond within certain time limits. Your lender has to tell you that you have these rights or the notice to take legal action is illegal.
When you have the right to apply to court to suspend the lender's action you are getting some more time to sort out the problems you have had with mortgage arrears. You will still have to pay the arrears.
If your mortgage lender has been granted a possession order, you will still be responsible for the mortgage payments until the property is sold. This is regardless of whether you are still living there. You will also be responsible for the cost of repairs, maintenance and insurance. You should check your insurance policy to see whether it is still valid if you're not living there.
Your lender has a duty of care towards you when selling your property. This means that they must get the best price that they can for it. However, in practice, lenders often sell properties at auction, and repossessed properties sold in this way often sell for less than they would on the open market.
If you believe that your lender has treated you unfairly, for example, because they took a long time to sell your property and your arrears went up because of this, you can complain to the Financial Services Ombudsman.
Once your lender has sold your property they will:
If you don't pay off the mortgage shortfall and then buy another property, the lender of your first property may take court action against you. In England and Wales, if they get a court order against you, and you don't pay up, they could then apply for a charging order against your new property. In Northern Ireland, they can apply to the Enforcement of Judgments Office for an order charging land against the new property on foot of the court order. This means that, when you sell the new property, the money from the sale will be used to repay the shortfall once any other mortgages registered before the charge have been paid. The lender of your first property may also be able to force a sale of your new property in order to obtain repayment of the shortfall. In Scotland, if you don't pay off the mortgage shortfall and then buy another property, the lender of your first property may apply to court for powers to force you to pay back the shortfall. This could include making you bankrupt.
If there is a shortfall after your property has been sold, you should get advice.
If you are on a shared ownership scheme in England and Wales, you will usually make a monthly payment towards your mortgage and a rent payment to your landlord In Northern Ireland the rent payment will go the Northern Ireland Co-Ownership Housing Association. This means that there are two possible ways your home could be repossessed if you get into arrears. If you are in arrears on your mortgage, your mortgage lender could try and get possession of your property. If you are in rent arrears, your landlord or Northern Ireland Co-ownership Housing Association could try and get possession.
If you are on a shared ownership scheme In England and Wales, you may be able to reduce your mortgage payments through selling back some of your ownership of the property to the landlord. This is called flexible tenure. Not all shared ownerships schemes offer flexible tenure so you will need to contact your landlord to check if this is available. You will have to show that you've explored all other options first.
There may be other options available to help you sort out your mortgage or rent arrears.
If you have trouble in meeting your mortgage or rent payments or you are already in arrears, you should get help straight away.
As well as the first mortgage on your property, you may have taken out a second mortgage or further loan from a bank or finance company, using the property as security. This is known as a secured loan. The loan could have been used, for example, to pay for repairs, home improvements, a car, or to pay off other debts.
If you get into arrears on a second mortgage or other secured loan, the lender will usually try to get possession of your property and sell it in order to pay back the loan.
The lender of a secured loan has the same rights to evict you if you are in arrears as the lender of your first mortgage. The second lender does not have to get the permission of the first lender before trying to get possession of your home.
If you are in arrears on a second mortgage or other secured loan, you should get advice.
You can get information about mortgage arrears in a leaflet produced by (NHAS) (opens a PDF).
