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This information applies to England and Wales
What can you do about mortgage arrears?
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:
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Cutting down your monthly mortgage costs
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.
Before you agree to make any changes to your mortgage, you should ask your lender if there will be any charge for this, such as a redemption or administration charge, and how much this will be. If the charge seems very high, you should get advice from an experienced adviser.
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 is owing 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, 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
- 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)
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.findanadviser.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, see Help with debt. You can also use the Budget sheet in Credit and 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 your capital (capitalising the arrears) and paid 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, although you will end up paying a much 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 will need to find another way to pay off your mortgage loan and you will also need to find alternative life insurance cover. 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. 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.
If you are sure that you want to sell your endowment policy, the Association of Policy Market Makers (APMM) can give you advice and help you sell your policy. You can contact the Association on 0845 011 9406, or look on their website at: www.apmm.org.
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Dealing with your mortgage lender
What your mortgage lender has to do
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 do before they consider court action. These steps include:
- giving you information about the amount of your arrears and whether interest or charges will be added
- talking to you, or someone acting on your behalf, about the cause of the arrears, your financial circumstances and proposals for repayment
- considering a reasonable request from you to change the date of your regular payment
- if you have broken a payment agreement, writing to you to give you notice that they will start court action unless you make up the payments you have missed.
If the case does go to court, the judge will take into account if your mortgage lender has followed the protocol correctly. This could affect the outcome of the case.
You can get advice about whether your lender has followed the protocol 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.
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 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 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, they will probably take you to court and try and get possession of your property. If you argue your case in court, the judge 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.
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Increasing your income
If you are in mortgage arrears, you should see if there are 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, 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.
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:
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. This may have some drawbacks and you may need your mortgage lender's permission. Get advice about this
- moving out of the property and letting it. This may have some drawbacks and you'll probably need your mortgage lender's permission. Get advice about this first, and make sure you have somewhere else affordable to live.
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 which 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:
- a private company
- a mortgage company
- a social landlord, such as a local authority or housing association
- an individual.
Things to look out for when you're thinking about signing up to a mortgage rescue scheme include:
- whether the scheme offers benefit or debt advice and if so, is it independent or monitored in any way?
- who pays for the costs of selling the property?
- 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 are the rents set, including how often will the rent 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?
- are there any insurance or bond arrangements if the scheme ever runs into financial difficulties?
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.
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:
- they often buy homes below the market rate
- you will probably have an initial tenancy which runs for six or twelve months and, during that time, the landlord might charge you what seems to be a reasonable rent. However, after that, if your tenancy is renewed, you may be charged a much higher rent or one which is not that different from what you would have paid if you were still paying off the mortgage and the arrears
- the type of tenancy offered may give you little protection from eviction which means that the landlord might be able to evict you quite easily.
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, 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:
- 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 back your property back if your financial situation improves. You should check whether this will be possible
- a shared owner. Your home would be sold, usually to 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.
The Government has announced a mortgage rescue scheme to help vulnerable homeowners to stay in their home. The scheme is expected to be up and running in January 2009. You can get more information from the Department for Communities and Local Government website at: www.communities.ov.uk. If you are interested in the scheme, contact your local Citizens Advice Bureau for more information about whether you qualify.
In Wales, the Welsh Assembly Government has set up a mortgage rescue scheme with housing associations in Wales. More information about the scheme is available on the Welsh Assembly Government website at: www.new.wales.gov.uk.
For more information about shared ownership schemes, see Finding accommodation.
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Selling your property to pay 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 sell the property. If they don’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 wait to get evicted and let your mortgage lender 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. Properties which have been taken back from the owner (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 of money which 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:
- 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 see whether 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
- think about 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
- think about the effect on taxation and benefits.
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 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 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. 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 your lender will take to recover arrears
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:
- writing to you to ask you to pay back the arrears
- issuing a claim for possession of the property. This will be sent by the county court and will give you details of when the court hearing will take place and the case against you
- sending you a notice at least 14 days before the court hearing to say that possession proceedings have started
- a court hearing at which a district judge considers your lender's claim against you and any offers you have made to deal with the arrears
- a judgement, when the judge will decide what action is to be taken. This could mean postponing (adjourning) the case, dismissing the case, allowing you to stay in the property as long as you keep to an arrangement to pay off the arrears (suspended possession order), or making an order for you to leave the property (outright possession order). If an outright possession order is granted, this may or may not include an order for you to pay back any money owed (money judgment)
- application for a warrant for bailiffs to evict you. This can be made either where the judge has made an outright possession order or where a suspended possession order has been made and you haven't kept to the terms of the agreement. 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 bailiffs, who will inform you of the date and time of the eviction in advance. The bailiffs visit the property to make sure that it's empty and then change the locks.
For more information about bailiffs, see Bailiffs in Credit and Debt fact sheets.
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 of possession, 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.
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 England or How to use an ombudsman in Wales.
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 a charging order against your new property. This means that, when you sell the new property, the proceeds of the sale will be used to repay the shortfall.
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.
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Arrears on shared ownership properties
If you are on a shared ownership scheme, you will usually make a monthly payment towards your mortgage and a rent payment to your landlord. 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 could try and get possession.
If you are on a shared ownership scheme, 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 from an experienced debt adviser. A Citizens Advice Bureau should be able to help. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
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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 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 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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