Housing Related Debts

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1) Mortgage Arrears - Your Options

Paying your mortgage will always be a priority payment, meaning you should maintain these payments before paying other debts like loans and credit cards.   If you find yourself in arrears it’s important you contact your mortgage provider as soon as possible to try to come to an agreement to repay the arrears. 

Missed payments can happen at any time if the has been a change in your financial circumstances. If you have an insurance policy for your mortgage check if it will maintain your mortgage payments.  

Depending on the type of mortgage you have and your personal circumstances, your mortgage provider may consider the following options:

• Convert your mortgage to interest-only for a period to help clear the arrears
  Your mortgage provider may allow you to make interest-only repayments for a short period with a payment towards the arrears. The capital amount you borrowed will remain the same, but and the arrears will reduce. The reduced repayments allows some flexibility in your budget to repay the arrears until your situation improves.  Because the capital borrowed is not reducing it is very important to be aware that this will have to be paid before the end of the mortgage term, otherwise you could lose your home.  
• Increasing your repayments to clear the arrears
  ​Calculate a monthly budget to establish if you have any remaining income after paying your essentials and priority debts. Any surplus funds remaining can then be offered to your mortgage provider to repay the arrears along with your ongoing mortgage repayments. This is an option for those whose financial situation has improved since falling into arrears and are now able to maintain their ongoing mortgage repayments in full with an additional surplus towards the arrears
• Adding your arrears to the mortgage balance
  If your mortgage adviser offers this option your payments will increase and the arrears will be cleared over remaining period of your mortgage. In the long term, this option is more expensive due to the additional interest you will pay on the arrears. If your home is in negative equity (it is worth less than the mortgage balance) or if you have a bad repayment history with your mortgage provider they will be unlikely to agree to this option.
• Extending the mortgage term
  Your mortgage provider may agree to extend the remaining term on your mortgage. This will reduce your normal monthly repayments and the lender will want to make an additional agreement to clear the mortgage arrears. This longer repayment term will cost you more in the long term and this option is only available if you have a repayment mortgage. 
• Delay payments of arrears
  If you had a temporary issue and you are now making your mortgage repayments as normal, your provider may put repayment of your arrears on hold for a period. These arrears will remain on your mortgage account. You need to be careful before agreeing to this option as your mortgage provider may continue to apply interest to the balance.

If you are unable to negotiate repayment of the arrears with your mortgage provider they will write to you to warn they will be commencing court action. Do not ignore any letters.  If this happens to you, immediately contact us for advice.

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2) Repossession

Your mortgage provider will only ever look to repossess a property as a last resort. If you speak to your mortgage provider about your arrears you can normally come to an arrangement that will avoid repossession. If you are unable to negotiate with your lender, or do not contact them regarding your arrears, then your mortgage provider will have to follow certain steps outlined in the ‘Pre-action protocol for possession proceedings’ which apply to all residential mortgages.   The protocol does not apply to buy to let properties.

The pre-action protocol for possession proceedings steps do not apply to buy-to-let mortgages. 

The pre-action protocol steps are there to ensure that you and your mortgage provider try to reach an agreement before having to go to court.  If you are unable to reach an agreement, the court will check that your mortgage provider has adhered to the protocol, and will take this into consideration when arriving at an outcome of the case or award of legal costs.

The pre-action protocol states that:

• You and your mortgage provider should discuss the cause of the arrears, assess your current financial circumstances and conduct an overview of your potential options for repayment
• Your mortgage provider advises you to seek independent debt advice from an advice service and/or housing advice from the housing rights service
• Your mortgage provider explores all options to deal with the arrears. 
• Your mortgage provider gives you some time to consider any repayment options they offer to you
• ​Your mortgage provider assesses any offer you make to deal with the arrears and provides reasons if it is unacceptable to them

If you are unable to reach an agreement with your provider out of court, they may apply to court for a possession order. If this happens, you will receive a Summons in the post. This explains that your provider is seeking an Order for Possession of your property and details the date and time of the hearing. This situation can be complicated, so you should seek professional advice immediately from a solicitor, the Housing Rights Service or contact us for advice. See the useful contacts section at the end of this factsheet.

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3) Negative Equity

Negative equity means a property is worth less than the mortgage secured on it. This could be for a number of reasons, but is normally a result of falling house prices. There is no guaranteed solution to negative equity, so none of the options in this section may if your home is in negative equity contact us for advice.

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4) If you are in negative equity but want to move home

If your home is in negative equity and you want to move, contact your mortgage provider to see if they have options available. If you have a perfect payment record some mortgage providers may offer options.  These could include allowing you to move property if you wish. Criteria can include a maximum amount of the existing negative equity that can be included in your mortgage on your new property which can vary by provider. If you need assistance in pursuing this option contact us for advice.

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5) Options to deal with negative equity

Renting out your home
If your home is in negative equity and you cannot afford the payments, renting out could be an option. The rental payment should cover the repayment mortgage, rates. Insurance on the building and (the contents if letting furnished) should be changed to landlord insurance.  You will continue to have the responsibility to maintain the property, perhaps have estate agents fees for managing the property and should set aside any monies as income if relevant for self-assessment for tax purposes.  

Renting your home should only be considered after obtaining the permission of your mortgage provider

Selling your home
You need your mortgage provider’s agreement to sell your home if it is in negative equity, as they have the ability to stop a sale progressing if the sale price does not cover the outstanding mortgage. Before agreeing to the sale the provider will carry out their own valuation to ensure you have put the house up for sale at the market value.  

Voluntary surrender the property
You can request a Voluntary Surrender from your mortgage provider. You can return the keys to the provider in person, getting a receipt they have been received or by registered post. The property must be vacant with no contents left behind.  If agreed, they will take possession of the property and put it up for sale, you will have no control of the selling price or the timescale for selling. You will be liable for the rates and building insurance until the property is sold. Once property is sold you will become liable for any  shortfall generated after sale. The recovery period on shortfalls through the courts is twelve years. It will be recorded on your credit file for six years. Options are you may be able to enter into an informal agreement with the mortgage provider to make a greatly reduced lump sum payment in full and final settlement, or a formal arrangement is to have the debt included in an Individual Voluntary Arrangement or have the debt written of through Insolvency.   

Change your mortgage type
You can ask your mortgage provider to change your mortgage from interest-only to repayment if it is not already repayment. Your monthly mortgage repayments would increase however you would be repaying a portion of the mortgage capital each month. Your negative equity would then continue to reduce.

Add value to your property
Any funds or savings you have could be better used for improving your current home. Investigate the costs of converting your loft, remodelling room layouts or extending to add value to your property and help your negative equity scenario, allowing you to stay in your home longer until property prices increase.

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6) If your mortgage provider is unhelpful

The Financial Conduct Authority (FCA) regulates mortgages taken out since 31 October 2004. If your provider is unhelpful you should continue through the providers own complaints process and if you are unhappy with their response you can then escalate your complaint to the FCA. You can also complain to the Financial Ombudsman Service (FOS) so they can determine if the provider treated you fairly and reasonably. 

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7) Mortgage Shortfalls

When a property is sold for less than the mortgage outstanding, the difference that is still owed on the mortgage account after the sale is known as a mortgage shortfall. You may not be aware of the extent of your mortgage shortfall if you had your property repossessed or voluntarily surrendered the property to the mortgage provider until your mortgage provider writes to you. Often this can be many years after the sale of the property as the mortgage provider may not be able to locate you.

If the mortgage was originally in joint names, you will need to be aware of what the other joint party has done.  If they have made contact with the provider during the 12year period this can affect the time the creditor has to take you to court.  Any contact made to the creditor will be binding to the other party.   

One option is to check your credit report to see if it has details of the debt and the last time anyone made a repayment towards the debt. However, the debt may not always be listed on your credit report. 

Be careful not to acknowledge the debt if you write to your provider. Acknowledging the debt could restart the limitation time if the debt is not already statute-barred.

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8) Rent Arrears

If you miss payments on your rent and fall into arrears, your landlord can take legal proceedings to evict you from the property. Your landlord is under no obligation to negotiate with you, however if you contact them they could be sympathetic with your issues. If you will be paying late or missing a payment, then you should make your landlord aware as soon as possible. This advanced notice will allow your landlord to take steps to minimise any affect the missed payment will have on their own personal circumstances. 

If you cannot afford to pay your rent in full, you should offer as much as you can afford towards the rent to show your landlord you intend to deal with the situation. This will also keep the rent arrears to a minimum. If the landlord refuses the offer, keep this money aside as if there are court proceedings it will can help your case. 

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9) Negotiating a payment plan for rent arrears

Your landlord does not have to accept any repayment proposal you offer, however they may be willing to do this if you have been a good tenant and the proposal you make is realistic and timely. 

Rent arrears are a priority debt and should be repaid before credit debts such as loans and credit card repayments.  

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10) Housing Rates Arrears

Payment of rates is a legal obligation; if you are unable to maintain these repayments you should notify Land and Property Services (LPS) immediately. LPS will always try to negotiate a suitable payment agreement directly with you based on affordability. 

If you are unable to pay ongoing rates, or make an arrangement to clear your arrears, LPS may take steps to take you to court. This could mean:

• Additional costs being added to your account
• Your credit rating may be affected
• You could be made bankrupt if the debt owed is over £5,000
• You may lose your home if there is any equity

If you have a professional debt adviser negotiating on your behalf LPS may be willing to offer you an extended period to deal with your rates arrears. If you think you could benefit from having someone do the negotiating for you contact us for advice.

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11) Mortgage Charter

The Mortgage Charter sets out the standards lenders will adopt when helping their customers; signatories will provide borrowers with new flexibilities to manage their mortgage payments over a short period.

You can read the full Charter on GOV.UK.

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12) Useful Contacts

Housing Rights Service	02890 245640 www.housingrights.org.uk
Land and Property Services (LPS)      Land and Property Rating Services Lanyon Plaza 7 Lanyon Place Belfast BT1 3LP	0300 200 7801 www.finance-ni.gov.uk/land-property-services-lps
Financial Conduct Authority	0800 111 6768 www.fca.org.uk
Financial Ombudsman Service	0800 023 4567 www.financial-ombudsman.org.uk

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