Mortgage arrears

The mortgagor/homeowner should immediately take steps to discuss their mortgage arrears with their mortgage lender, to see if a new payment plan can be agreed upon. If monthly payments are generally too high, it may be possible to extend the mortgage over a longer period to reduce payments - or even switch to an interest only mortgage. If arrears were caused by a temporary financial issue, there may be an option to take a 'repayment holiday' for several months (although this will increase the length of the mortgage).

In terms of repayment of arrears, it is sometimes possible to add these to the overall mortgage, so that repayment of this debt takes place over the entire lifetime of the mortgage - this method is known as 'capitalising arrears'.

Mortgagors on qualifying benefits (eg income support) may be able to get help with the interest portion of mortgage repayments, known as Support for Mortgage Interest (SMI). This takes the form of a government loan which must be paid back with interest upon the sale or transfer of the property.

For more information, read Support for Mortgage Interest (SMI).

If SMI is unavailable and negotiations with the mortgage lender fail to result in a mutually agreeable repayment plan, other options which may need to be considered include:

• obtaining a new mortgage with a different lender
• selling up - this may involve downsizing or moving to a more affordable area, or even renting
• voluntary repossession - moving out and handing the keys back to the mortgage lender should only be considered as a last resort; as it does not avoid repayments which fall due before the property is sold, makes it more difficult to obtain a mortgage in the future, and can potentially lead to being classed as 'intentionally homeless' (which makes it more difficult to find council accommodation)
• Scottish Government schemes - where a mortgagor is located in Scotland they may be eligible for the Scottish Government’s mortgage to rent or mortgage to shared equity schemes, or a different mortgage rescue scheme operated by the local housing authority

England and Wales

Before taking repossession action, mortgage lenders must first consider requests to alter mortgage payments and respond to any offers of payment within 10 days, providing reasons for declining. They must also provide a reasonable amount of time for the mortgagor to consider any proposals they put forward. Lenders then need to give 15 days' written notice if they plan to take court action for repossession.

Once repossession action has started, the mortgagor has 14 days to return a defence form, setting out any arguments against repossession. The next step is the court hearing (which generally takes place in a judge's chambers), where a decision will be made on a type of repossession order - or to adjourn or set aside the case.

For more information, see the Government’s guidance.

Scotland

First, the mortgage lenders must send a notice of sums in arrears to the mortgagor (this is to inform the mortgagor that they have fallen into arrears). The mortgage lender must then send the mortgagor a default notice before taking repossession action - this notice requires the mortgagor to repay the arrears or make good the default. They must also provide a reasonable amount of time for the mortgagor to consider any proposals they put forward.

If the arrears have not been repaid or no repayment arrangement has been agreed upon, the mortgage lender can then issue the mortgagor with a calling-up notice, asking the mortgagor to pay the full amount under the mortgage agreement, and apply to the Sheriff Court for a Section 24 notice to repossess the property. Once you have received an initial writ, you should be given 14 days’ notice of the date for your case to be heard at the Sheriff Court.

Once repossession action has started, the mortgagor has 21 days to return a defence form, setting out any arguments against repossession. The next step is the court hearing, where a decision will be made on a type of repossession order - or to adjourn or set aside the case.

For more information, read the Scottish Government’s guidance.

Mortgagors who feel they have not been treated fairly by their mortgage lender in relation to arrears can complain to the Financial Ombudsman Service. They may ask the lender to offer a new repayment plan or repayment holiday - and can even tell a lender to refund a mortgagor if they consider charges applied to arrears to be unfair.

For more information, visit the Financial Ombudsman Service website.

Tenants (also known as ‘contract holders’ in Wales) will generally need to leave a property which is subject to a repossession order. However, they may be able to stay if:

• the mortgage lender agreed to the tenancy

• they were living in the property when their landlord was granted a mortgage

• the mortgage lender has recognised their tenancy (eg by asking them for rent payments)

For more information on the rights of tenants facing eviction due to mortgage arrears, read the Citizen’s Advice guidance for England, Wales and Scotland.