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Mortgage rescue schemes

This information applies to England and Wales

What is a mortgage rescue scheme

If you're struggling to pay your mortgage, one option you may want to think about is a mortgage rescue scheme run by a social housing landlord such as a housing association.

Mortgage rescue schemes are different from schemes run by private firms or individuals. Schemes run by private firms or individuals are known as sale and rent back, buy back or sale and lease back schemes.

For more information about sale and rent back schemes run by private firms, see Sale and rent back schemes.

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.

On this page, we tell you about:

If you’re having serious difficulties paying your mortgage, for example, if you’ve started getting letters from your mortgage lender threatening court action, you should get help from an experienced debt adviser straight away.

You can get debt advice from a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.

You might also find it helpful to look at What happens if your mortgage lender takes you to court.

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Things to look out for before signing up to a mortgage rescue scheme

If you're thinking about signing up to a mortgage rescue scheme, there are some things you should look out for. These include:

  • what type of tenancy is being offered? If it's a tenancy which only lasts a certain period of time to start with, can it be renewed after that and when can the landlord take court action to evict you?
  • how is the rent set, including how often will it go up and by how much?
  • what are the responsibilities and obligations of both the landlord and tenant?
  • can shares in the property be bought back if your financial position improves?

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.

If you're thinking about signing up to a mortgage rescue scheme, 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.

You may also want to think about getting independent financial advice. This will help to make sure you've thought carefully about how signing up to a mortgage rescue scheme will affect your financial and housing situation in the longer term.

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Government-backed mortgage rescue scheme in England

In England, the Government has launched a mortgage rescue scheme to help vulnerable homeowners to stay in their home. The scheme has two separate parts - a Shared Equity scheme and a Mortgage to Rent scheme.

Under the Shared Equity scheme, a housing association will give you a loan which will be used to lower your monthly mortgage repayments. You will need to repay the loan to the housing association but you will still own your home.

Under the Mortgage to Rent scheme, a housing association buys your home and  allows you to carry on living there as a tenant. It means you will no longer own your home. You will have to pay rent each week or month to the housing association.

Who can apply for the scheme

To be able to get onto one of these schemes, you will need to show you are at risk of being made homeless in the near future because of repossession by your mortgage lender. You will also need to show that you need to stay in the same area where you live, and that:

  • you, or someone in your household is pregnant or
  • you have dependant children, or
  • you're vulnerable. This could be, for example, because of old age, mental illness or a disability.

You will not be able to apply for either of the schemes if:

  • the total amount of annual income in your household is more than £60,000
  • you have more than one home
  • your home is valued above a certain amount for your area.

As well as meeting these conditions, which apply to both schemes, you will also need to meet some additional conditions, depending on which scheme you apply for. These are described below.

Your local authority may have other, local criteria that you have to meet too. They will be able to give you more information about this.

Shared Equity scheme

To be able to get on the Shared Equity scheme, you must:

  • have a certain amount of equity in your property. Equity is the difference between how much your property is worth and the amount you owe on the mortgage
  • be able to keep up payments to your mortgage once you have been granted an equity loan.

How shared equity works

If you are considered suitable for shared equity:

  • a housing association will offer you a loan of between twenty-five and seventy-five per cent of your current mortgage. This will be paid to your mortgage lender
  • the loan will reduce your overall monthly mortgage repayments. The loan is secured against your home
  • you will be charged three per cent of the value of the loan for joining the scheme
  • you will be charged an interest fee on the loan of 1.75 per cent for the first year. The fee will increase after the first year at a certain percentage rate
  • you will continue to have to pay for any repairs or maintenance on your property.

The property will remain yours, as long as you are able to keep up the payments on your mortgage and on the loan. If you can't keep up your repayments, your mortgage lender will be able to take action to try and repossess your home.

Mortgage to rent scheme

How the scheme works

If you're considered suitable for the scheme:

  • you will no longer own your home. Instead, a social housing landlord buys the property and rents it back to you. This is usually a housing association. You will become a tenant of the housing association
  • you will have to contribute 10 per cent of the value of your home to join the scheme. If you have less than 10 per cent equity in your home or you're in negative equity, you may still be able to join the scheme but you may need to come to a separate arrangement with your lender
  • you will be given an assured shorthold tenancy. The tenancy will allow you to stay in your home for at least three years. At the end of this time, you should be given a new tenancy, as long as you've kept to the conditions of your tenancy agreement
  • your landlord will be responsible for any repairs to the property
  • you will have to pay rent and keep to the other conditions of your tenancy agreement
  • the rent that you will be charged is 80 per cent of the rent your home would be expected to get on the open market, if you let it out.
For example: your home was on the open market to rent and a letting agent suggested that you would be able to get £550 per month for it. Under the Mortgage to Rent scheme, the rent you would be charged is eighty per cent of this amount. You would have to pay £440 a month rent to your landlord.

For more information about social housing landlords, see Renting from a social housing landlord.

For more information about assured shorthold tenancies, see Renting from a private landlord.

Once you've agreed to sell your home to the housing association, you won't have an automatic right to buy the property back again, although this may be possible in some circumstances.

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How to apply for a Government-backed mortgage rescue scheme

To apply to go on either the Shared Equity scheme or the Mortgage to Rent scheme, you will need to:

  • get a money advice agency to carry out an up-to-date assessment of your finances. This will show whether one of the schemes is an option for you
  • be sure that your mortgage lender has considered other options and will support your application
  • be sure that there is currently no legal reason why your property can't be sold
  • provide an up-to-date valuation of your property to show its possible selling price.

You may not be able to go ahead with the scheme if a valuation finds your property needs a lot of work done on it.

Once you've been made an offer by a housing association to go on the Mortgage Rescue scheme, they should arrange for you to get free independent financial advice.

However, you may want to get independent financial advice before an offer is made, to make sure that you are making the right financial decision. If you want to get financial advice earlier on, you will have to pay for it.

To apply to go on the Government-backed mortgage rescue scheme, contact your local Citizens Advice Bureau. They will be able to advise you whether or not you qualify. To search for details of your nearest CAB, including those which can give advice by email, click on nearest CAB.

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Local authorities and Mortgage Rescue Schemes in Wales

In Wales, from April 2011, local authorities can decide whether to help with mortgage rescue. To find out what help is available in your area, contact your local authority.

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Mortgage rescue schemes run by social housing landlords

Some local authorities and housing associations may run other mortgage rescue schemes apart from the government-backed scheme. These schemes may be offered as part of their home-ownership services, although there may not be many of them around. Also, they often have strict rules about who can apply, so you may not qualify.

To find out more about mortgage rescue schemes run by local authorities and housing associations, ask your local authority.

If you are thinking about signing up to a mortgage rescue scheme run by a social housing landlord, 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.

You may also want to think about getting independent financial advice. This will help to make sure you've thought carefully about how signing up to a mortgage rescue scheme will affect your financial and housing situation in the longer term.

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Further help

More information about mortgage problems

On Adviceguide

On the National Homelessness Advice Service website

Go to www.nhas.org.uk

On the Money Advice Service website

Go to www.moneyadviceservice.org.uk

Independent financial advice

If you're thinking about signing up to a mortgage rescue scheme, you should get independent financial advice. The following organisations can help you find an independent financial adviser:

Independent Financial Promotions (IFAP)

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

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