Can I Sell My House With Mortgage Arrears?

Falling into mortgage arrears can be incredibly stressful. There is a risk of home repossession, downgrades to your credit score, and penalty fees that you might incur with your lender. Mortgage arrears are actually more common than you think, and it’s important not to panic. If you’ve fallen into arrears on your mortgage then there are still options for you to meet your payments, manage your debt, or even sell your house whilst in arrears. We’ve compiled this handy guide to help you with the process of selling your house in mortgage arrears. Read on for more information or use the menu below to navigate easily. 

What are Mortgage Arrears? 

Being ‘in arrears’ on your mortgage means that you have at least one payment outstanding. A mortgage agreement is a legally enforceable agreement wherein you commit to pay back a loan in monthly instalments. If you miss one of these instalments then you enter what is known as ‘arrears’. 

Mortgage arrears can occur for a number of reasons. Some of the most common reasons that people enter mortgage arrears are unemployment, increasing interest rates, and mounting financial obligations. It’s important to act quickly if you enter mortgage arrears. Contacting your lender as quickly as possible and keeping them updated on the situation and your plan to resolve it could prevent them from taking drastic action. Lenders will typically charge a late payment fee if you miss payments, and if you fall behind on multiple payments this can start to snowball into quite a significant amount of debt. 

Your lender may initiate proceedings to repossess your home if you fall behind on multiple payments and have been in arrears on your mortgage for some time. This can be an incredibly stressful process and will incur additional costs. For example you will likely have to hire a solicitor to help with legal proceedings. Prevention is definitely the best route here. There are a number of support options available if you enter arrears on your mortgage. We’ve discussed some of the most helpful options below. 

Financial Support for Mortgage Arrears 

Just because you’ve missed a few mortgage payments does not necessarily mean that you will have repossession proceedings brought against you. If you are proactive and act quickly then you might be able to resolve the issue, or sell your home to get out of arrears. We’ve listed some of the most impactful things below that you can do to help your situation if you’re in arrears on your mortgage. 

• Apply for breathing space. ‘Breathing space’ is a government scheme which allows you time to seek debt advice and find a solution to money problems. National Debtline offers a detailed explanation of Breathing Space. If you meet the eligibility requirements for Breathing Space then you will be granted a 60 day period to find the best possible solution to deal with your debts. It’s important to bear in mind that once you have had Breathing Space you cannot have it again for the next 12 months. 
• Pay what you can afford. If you can’t afford to pay off your arrears immediately then you should ask for longer to clear the arrears. Make an offer to your lender to pay what you can afford immediately and explain why this is the most that you can afford. Showing an intention to repay what you can is useful in creating goodwill with your lender. 
• Change to repayment mortgage. If you have an endowment mortgage then it’s possible that you can change your mortgage to a repayment-only mortgage. This means that you will be able to pay a smaller monthly repayment and therefore your mortgage will be more affordable. 
• Increase your mortgage term. Mortgages tend to be spread over many years, known as the mortgage term. Extending your mortgage term gives you a longer time period to pay back your mortgage, which will in turn reduce the monthly amount that you need to pay back. It’s important to bear in mind that this will increase the total amount of interest that you repay, but it could mean that you are able to afford your repayments again and prevent repossession. 
• Pay interest only. If you have a repayment mortgage (as opposed to an endowment mortgage), then you could potentially just service the interest part of your monthly payment. It’s likely that your lender will only allow you to repay like this for a limited period of time, but this could give you enough room to get your affairs in order. 
• Capitalise your arrears. Capitalising your mortgage arrears means that the amount of your arrears is added to the amount of your total mortgage. This means that you’re able to repay your arrears over a longer period of time. You should be aware that this will increase your monthly payments, but it could clear a significant amount of immediate debt and relieve the pressure. 

These are great options to buy yourself time if you’ve entered into arrears on your mortgage or if you need to bring your monthly payments under control. If you have experienced a significant loss of income however, and you think you’re likely to enter arrears in the future, you may be better off selling your house. Below we discuss how you can sell your house when you’re in arrears on your mortgage.