Falling into mortgage arrears is a distressing scenario, so it’s important to approach the situation carefully, communicate with your lender, and explore all your financial options to minimise the potential impact on your finances and credit.
Here’s everything you need to know about selling your house while you are in arrears.
I’m in arrears with my mortgage - can I still sell my home?
Yes, you can sell your home if you are in mortgage arrears. Many people who fall into mortgage arrears choose to sell their home in order to avoid repossession, pay off their debts, and free up some money to fund their next home.
Related: Tips on how to sell your house quickly
Will my home be repossessed if I don’t pay my mortgage?
Falling behind on too many mortgage payments can result in your home getting repossessed. The number of payments you can miss before this happens depends on your mortgage provider and the terms of your mortgage agreement.
Pre-action protocol
Repossession can be a scary prospect, but it is always a last resort. When your lender contacts you about missed payments, they must follow certain steps to rectify the issue and avoid any court hearings. These steps are outlined in the ‘pre-action protocol’.
Your lender must:
Inform you how much you owe and any additional charges you have to pay on your debt
Consider any reasonable request made by you to alter the way you pay for your mortgage
Respond to any offer of payment you make
Provide you with their reasoning behind turning down any offers of payment within ten working days
It’s essential to contact your lender as soon as you start experiencing difficulties with making payments. They may be able to offer alternative repayment arrangements or provide advice on how to manage your situation.
What happens to my mortgage when I sell my house?
Any outstanding mortgage balance must be paid off when you sell, whether you are in arrears or not. The money made from the sale of the house is typically used to pay off the remaining debt, unless you are “porting” the loan to a new property.
Porting is when you transfer your existing mortgage from one property to another. If you are in arrears and are unable to afford your mortgage, porting your loan will not be an option. In this case, you will need to settle your outstanding mortgage balance using the proceeds of the sale. Your solicitor will settle this for you once the home is sold, and anything left minus fees for conveyancing and other services will be paid directly to you.
Related: How much can I afford to borrow?
Can I still sell if I’m in negative equity?
You can sell if you’re in negative equity, but you won’t be able to pay off your mortgage through your house sale alone.
Negative equity means that the house’s value is worth less than the remaining balance on the mortgage, therefore, the sale price won’t cover the full mortgage balance. If this is the case, you will have to continue making your regular repayments to the lender until your debt is cleared.
Related: Negative equity - what you can do
What is considered a ‘late’ mortgage payment?
Many mortgage lenders will provide their borrowers with a ‘grace period’, which is a window of time after a missed payment where you can still make your payment without it being registered as late. This could be anywhere between 10 to 15 days, so make sure to check the terms in your mortgage agreement.
How to avoid repossession of your home
If your late payment surpasses the initial grace period, a late fee will be charged by your lender, which could total anywhere between 5 to 10% of your monthly bill.
While this may seem like a minute figure, late fees can stack up quickly and worsen the situation if you’re already struggling to keep on top of your mortgage repayments. To avoid repossession, you should consider the following:
Contacting your lender
Don’t wait for your lender to contact you about missed mortgage payments, make sure to get in touch with them as soon as problems arise.
Seeking financial advice
Consider seeking advice from a professional financial adviser. They can provide you with guidance on managing your finances and negotiating with your lender.
Find a financial adviser in your local area
Applying for government support
Depending on your circumstances, you may be eligible for government support schemes such as Support for Mortgage Interest (SMI) or Universal Credit. These schemes can help with mortgage interest payments if you are on a low income or receiving certain benefits.
Selling your home
Selling your home voluntarily will likely be a better option than repossession. This allows you to control the sales process and potentially avoid the negative consequences of repossession on your credit history.
How long do mortgage arrears stay on credit reports?
If a late mortgage repayment has been recorded on your report, it will remain there for six years. However, your score will reduce over time, and lenders are likely to pay more attention to your most recent credit history. Therefore, if you keep up with your future payments, you can improve your credit score over time and still have access to credit at better rates.
Contact your local Ellis & Co agent for expert advice and guidance
