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This information applies to Scotland
What can you do about mortgage arrears
If you are in arrears with your mortgage payments, your mortgage lender will want you to clear the arrears. You must not ignore the problem of mortgage arrears. If you do, you could lose your home.
The lender can take action through the courts to get you evicted from your home (seek possession). This will allow it to sell the property and use the money from the sale to help pay off the debt.
If your lender knows that you are trying your best to stop the debt increasing, it might allow you more time to sort the problem out. If you are not confident about negotiating with your lender you must get help to do so.
You can get debt advice from your local Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on  nearest CAB.
Depending on your circumstances, there may be several things you can do, but you must act quickly. You may be able to:-
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Cutting down your monthly mortgage costs
If your financial difficulties are only short-term, you could think about asking your mortgage lender if it will agree to cut down your monthly mortgage costs for a limited period of time. This could allow you to carry on making a monthly payment for your mortgage plus pay off some of the arrears each month.
Before you agree to make any changes to your mortgage, you should ask your lender if there will be a charge for this, such as a redemption or administration charge, and how much this will be.
Depending on the type of mortgage you have, you may be able to:-
- reduce your monthly interest payments. Your lender is unlikely to agree to this unless there is equity in your property. Equity is the difference between how much your property is worth and how much you still owe on the mortgage
- increase the period of time over which the mortgage is paid. This would mean paying more interest in the long term
- suspend repayment of the amount you borrowed (the capital) and make interest-only payments
- find a cheaper mortgage deal with another lender. You may have to pay charges for changing your mortgage lender and you will still have to pay off any arrears. The Financial Services Authority (FSA) website has information about switching your mortgage at www.moneymadeclear.fsa.gov.uk
- pay a lump sum to clear some of the arrears and pay off the rest in monthly instalments over a fixed period of time. You should be careful not to get yourself deeper into debt by doing this. Get advice from a specialist debt adviser
- change your mortgage protection insurance, buildings or contents insurance to a cheaper policy
- if you own part of your home as part of a shared ownership scheme, you could ask the local authority or housing association if you can sell back some of your share
- reduce the payments on your endowment policy, if you have an endowment mortgage but see the warning below
- stop making payments into your endowment policy. You will have to make up these payments at a later date.
Making any changes to an endowment policy can be complicated and financially risky. You should seek independent financial advice first if you are thinking of doing this.
The following organisations can help you find an independent financial adviser:-
Independent Financial Promotions (IFAP)
Tel: 0800 085 3250
Website: www.unbiased.co.uk
Institute of Financial Planning (IFP)
Tel: 0117 945 2470
E-mail: enquiries@financialplanning.org.uk
Website: www.financialplanning.org.uk
Personal Finance Society (PFS)
E-mail: customer.serv@thepfs.org
Website: www.thepfs.org
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Paying off your arrears
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 may find it helpful to ask an experienced debt adviser to help you do this.
For more information on how to work out how much you can afford to pay off your arrears, You can also use the Budget sheet in Credit and debt fact sheets. In Scotland, see Help with debt and Budget sheet in Debt fact sheets.
You can get debt advice from your local Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
You will also need to decide how to pay off the arrears. You may have several options for doing this, including:-
- paying an extra amount towards the arrears each month on top of your regular monthly payments
- arranging to have the arrears added to the capital outstanding on the mortgage (capitalising the arrears) and paying it back over the remaining period of the mortgage. You could also ask to extend the term of the mortgage in order to keep your monthly payments down. This means, you will end up paying a larger amount in total
- giving up your endowment policy or selling it off to an investor. This will provide you with a lump sum of money which you can use to help pay off your mortgage arrears. However, you should think very carefully before doing this. You would then not have a lump sum from the endowment policy at a later date to pay off your mortgage. You will also need to find out whether there would be any penalties or other costs involved in bringing your endowment policy to an end early. Get independent financial advice first
- raising a lump sum to pay off all the arrears in one go. You could do this, for example, by borrowing money. However, you should be careful not to get yourself deeper into debt by doing this. Get advice from a specialist debt adviser.
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Dealing with your mortgage lender
Contact your lender and make them an offer
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.
You may want to get the help of an experienced adviser to do this.
You can get debt advice from your local Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
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:-
- the background to the problem
- the reason(s) why the arrears have built up
- that you previously had a good payment record, if this is appropriate
- whether there is any equity in the property.
You could also suggest to your lender that it accepts these arrangements for a certain period of time, after which it can review the situation to see how well it has been working.
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.
Making payments
You should start to make regular payments, however small. Even if your lender doesn’t accept the offer, it may help your case if it takes legal action 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 www.financial-ombudsman.org.uk, or phone 0845 080 1800.
If you haven't been able to agree with your mortgage lender on how to pay off your arrears, it will probably take you to court and try and get possession of your property. If you argue your case in court, 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, get help from an adviser. In some cases you can apply to the sheriff court to suspend the legal action being taken by the lender. You must get the help of an experienced adviser to find out if you can apply.
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Increasing your income
If you are in mortgage arrears, there might be ways you can 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 or Income-based Jobseeker's Allowance, entitle you to an allowance which will pay some of your mortgage costs. You will then have to make up any shortfall.
For more information about Income Support, see Help for people on a low income – Income Support.
For more information about Income-based Jobseeker's Allowance, see Benefits for people looking for work.
For more information about tax credits, see Benefits and tax credits for people in work.
Other benefits which you may be able to claim include:-
Council Tax Benefit. For more information, see Help with your council tax – Council Tax Benefit
Benefits for people who are sick or disabled. For more information, see Benefits for people who are sick or disabled.
Other ways you may be able to increase your income include:-
- making a claim on your mortgage protection insurance, if you have any
- taking in a lodger. Although this will increase your income you will become a landlord with extra responsibilities and you may need your mortgage lender's permission. Get advice about this
- moving out of the property and renting it out. This will increase your income but you will become a landlord with extra responsibilities and you'll probably need your mortgage lender's permission. Get advice about this.
You can get advice about increasing your income from your local Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
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Mortgage rescue schemes
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 in which a lender offers 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.
You need to be very careful about signing up to a mortgage rescue scheme because some of the schemes are not reputable. You should get independent advice before you agree to take part in a scheme.
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 have been some cases of people entering a scheme in which they pay very high rent and some have been evicted.
There are different types of mortgage rescue schemes. A scheme could be run by:-
- a private company or a private individual
- a mortgage company
- a social landlord, such as a local authority or housing association.
You should also bear in mind that if you sell your home but continue to live there and pay rent, you may not be entitled to Housing Benefit.
For more information about Housing Benefit, see Help with your rent – Housing Benefit.
Private mortgage rescue schemes
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 that a private company or individual may:-
- want to buy your home below the market rate
- start the arrangement with you for a reasonable rent but after, for example, 6 months, may increase the rent to the level of your previous mortgage payments and arrears and you will not be able to challenge it.
If you are thinking about signing up to a mortgage rescue scheme with a private company or individual, you should get advice from an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
For more information about your rights as a private tenant, see Private sector tenancies.
Schemes run by social landlords
Some local authorities and housing associations also run mortgage rescue schemes. They often have strict rules about who can apply.
These schemes will allow you to remain in your home either as:-
- a tenant. Your home would be sold, usually to a registered social landlord and then rented back to you at a rate which is less than your mortgage repayments. The scheme may give you the right to buy your property back if your financial situation improves. You should check whether this will be possible. Communities Scotland run a scheme of this type called the Mortgage to Rent scheme. For more information, visit the Communities Scotland website at: www.communitiesscotland.gov.uk.
- a shared owner. Your home would be bought usually by a registered social landlord and you would pay part rent and part mortgage. You may be able to increase your share of ownership when you can afford to. You should check whether this will be possible.
When your property is sold to a social landlord, the money is used to repay your existing mortgage and the arrears. If there is not enough money to cover all of the arrears, you will have to make other arrangements to pay off the difference.
To find out more about mortgage rescue schemes run by local authorities and housing associations, ask your local authority.
For more information about shared ownership schemes, see Finding accommodation.
You can also get more information about the Mortgage to Rent Scheme at your local Citizens Advice Bureau. To search for details of your nearest CAB, click on nearest CAB.
Selling your property to pay off the arrears
If you aren’t able to clear your arrears, a court will probably give your lender permission to evict you from your home. Your lender will then sell the property. If it doesn’t make enough from the sale to cover the money you owe on your mortgage, you will have to pay the difference (shortfall).
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 to be evicted and letting your mortgage lender sell it. This is because it is likely to get a lot less for it than you do leaving you with a debt to pay. Properties which have been taken back from the owner (repossessed) often sell for a lot less than the current market value. Also, lenders often sell at auctions where sale prices tend to be lower.
Selling the property yourself could give you a lump sum of money which you could use to pay off your mortgage. Before you think about selling your property, you will need to:-
- find somewhere else to live. If you're thinking about applying to your local authority to be rehoused as homeless, they may consider you intentionally homeless and may not agree to rehouse you
- get a valuation to check if the selling price will cover the mortgage and any arrears. If it doesn't, you will need to get permission from your lender to sell the property
- assess how long it would take to sell the property and the costs involved, for example, estate agent's and legal fees. Until the property is sold, you will still be responsible for the mortgage payments and your arrears may go up
- get specific advice about the effect on your tax and benefits (and the financial situation of other dependent adults in the property).
For more information about applying to the local authority for rehousing, see Finding accommodation.
If you're thinking about selling your property to pay off your mortgage arrears, you should get advice from an experienced adviser, for example, at your local Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
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Handing back the keys to your mortgage lender
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 handing back the keys when you still own the property and have the right to stay in it. You will still be responsible for mortgage payments and buildings insurance until the property is sold. You 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're thinking about applying to your local authority to be rehoused as homeless, don't hand back the keys without talking to them first and explaining your situation. Your local authority may consider you intentionally homeless and may not agree to rehouse you. However if a local authority considers that the borrower is intentionally homeless, another member of the household, who is in priority need but who was not responsible for paying the mortgage, could make the application. The local authority may then have to rehouse the family (including the borrower). If you're in this situation, get advice from an experienced adviser.
For more information about applying to the local authority for rehousing, see Finding accommodation.
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Action you may be able to take to suspend the lender’s rights to repossess
In some cases you can apply to the sheriff court to suspend the legal action being taken by the lender. You must get the help of an experienced adviser to find out if you can apply.
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 must get the advice of an experienced adviser 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.
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Action your lender can take to recover arrears
If the arrears you owe are on a first mortgage, there is a number of procedures the lender may use to get possession of the property then sell it. The procedures can involve:-
- writing to you to ask you to pay back the arrears and warning you that legal action will be taken
- issuing a notice of default
- sending you a calling up notice
- sending a court initial writ for repossession
- sending an initial writ for a court hearing the purpose of which is to declare the lender’s right to sell, enter into possession and eject you
- application for a warrant to eject to evict you. This can be made when the sheriff has made a possession order. Your lender can't legally evict you from your property unless they have applied for a warrant of possession first
- eviction from the property. This will be carried out by sheriff officers, who will inform you of the date and time of the eviction in advance.
It's worth remembering that it is almost never too late to try and come to an agreement with your lender.
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 from an experienced debt adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
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What happens after repossession
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 you have been treated unfairly by your lender, for example, because they took a long time to sell your property and your arrears went up because of this, you should complain to the Financial Services Ombudsman.
For more information about the Financial Services Ombudsman, see How to use an ombudsman in Scotland.
Once your lender has sold your property they will:-
- take what it is owed from the proceeds of the sale
- deduct any legal and estate agents' fees
- repay any other lenders if the property has been used as security for a loan
- give anything which is left over to you - although there may be nothing left over to give you and you may have other debts to pay off.
If the money from the sale of the property is not enough to repay what you owe, you will have to pay the difference. This is called a shortfall. The lender will send you a bill for the shortfall. The lender may go to court to force you to pay this amount.
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 from an experienced debt adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
Arrears on second mortgages and other secured loans
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 can 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 from an experienced adviser, for example, at a citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
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