Can You Sell Your House If You Are in Arrears?

A wooden house on a laptop - selling your house when in arrears


Updated Jan 2021

Can You Sell Your House If You Are in Arrears?

If you’ve fallen into mortgage arrears and need to sell your home to pay off the debt, there are several options to consider. Our team of property experts have compiled this guide, titled “Can You Sell Your House If You Are in Arrears?”, to answer this and other frequently asked questions regarding house payments, selling your property and mortgage repayments.

How Common Is It to Fall into Mortgage Arrears?

According to figures published by UK Finance, there were 74,850 homeowner mortgages in arrears of 2.5% or more of the outstanding balance in the third quarter of 2020. Overall, arrears levels last year were relatively low, as millions of people took advantage of “mortgage holidays” offered by lenders to help homeowners cope with any loss of earnings during the pandemic.

This looks set to change in 2021, as the deadline for payment holiday applications is scheduled for the 31st of March. Millions of people who took advantage of a break from paying their mortgages last year will have already reached the six-month holiday limit

Furthermore, with the country in recession and the government coronavirus job retention scheme (CJRS) due to end on the 30th of April, unemployment levels are forecast to rise dramatically in 2021. To date, 9.6 million workers have relied on the furlough scheme to keep them in employment.

It seems inevitable that the removal of these financial support systems will lead to an increase in the number of homeowners who fall into mortgage arrears. 

At House Buyer Bureau, we understand that falling into arrears can sometimes be completely unavoidable, and we’re here to help homeowners get back on their feet. Whether you’ve experienced an unexpected redundancy that has left you unable to make your monthly mortgage payments, a sudden illness that leaves you unable to work or a recent separation that has left you out of pocket, there are several solutions to consider.

Can You Sell Your House If You Are in Arrears?

Plenty of homeowners choose to sell their homes to avoid repossession, pay off debts and free up some money to fund a fresh start. If you’re in financial trouble, this could allow you to relocate to a less expensive, more manageable property and get back on track financially.

So, put simply, yes you can sell your home if you are behind with mortgage repayments (i.e. in arrears).

the word yes in a speech bubble

If you’re struggling to pay your mortgage, then selling your property can release the equity and leave you with a large sum of money that can be used to clear any arrears and provide you with the funds to put towards buying a more affordable property or renting for a while. 

If you’ve fallen behind on too many payments and your house is set to be repossessed, this will result in your property being put up for auction by your mortgage provider. 

Avoiding repossession by taking action as soon as you fall into mortgage debt is likely to lead to a much better outcome for you as the homeowner. If your lender repossesses the property and takes responsibility for selling it, they may not receive a high enough sale price to cover your arrears. In this scenario, you would have to make up the shortfall.

By selling the property yourself, to a reputable cash house buyer such as House Buyer Bureau, you’re likely to receive a better price for your property and avoid having a repossession registered against your name, which could affect any future credit applications you may make. You can pay off your mortgage with the proceeds and keep anything that is left to invest in a new home.

At House Buyer Bureau, we can help you sell your property within a timescale that suits your needs, and the sale can be finalised in as little as 7 days. We will pay the balance straight into your bank account, giving you quick access to the cash you need to become debt-free and start anew elsewhere.

House Repossessions during COVID-19

The Financial Conduct Authority (FCA) has imposed a moratorium on repossessions during the pandemic. This was due to end on the 31st of January 2021, but an extension until the 1st of April 2021 is currently under review. If these plans are approved, homeowners will be protected from repossession until the ban is lifted. 

If your financial difficulties are likely to be temporary — a short period of furlough during which you are only receiving 80% of your salary, for example — consider asking your lender about a payment holiday. Generally, you cannot skip a mortgage payment, but lenders have introduced six-month mortgage holidays to help people manage their finances during the coronavirus pandemic. The deadline for applications is the 31st of March 2021. 

How to Avoid Repossession of Your Home

To avoid repossession and get on top of your arrears, you should contact your lender as soon as you miss a payment. Don’t wait for them to contact you. 

Under “normal circumstances” (i.e. before COVID-19), if you miss a payment, you are in “arrears” and at risk of repossession. If you’re expecting a late house payment, it may seem like a disaster, but in most cases, this isn’t the end of the world. Many mortgage lenders will provide homeowners with a “grace period” — the name given to a period of time after the house payment is due. This period tends to be anywhere between 10 to 15 days, during which, homeowners’ house payments aren’t registered as late. 

However, if your late or skipped house payment falls behind the initial grace period, a late fee will be payable. Depending on your mortgage agreement, this can fall anywhere between around 5 to 10% of your monthly repayment. Whilst this may not seem like a significant increase, late fees and missed payments can quickly become unmanageable. If you can’t agree on a new repayment plan or resume your regular payments, the lender may start court action to repossess the property.

If you think you will be late with your payment, you should get in touch with your lender as soon as you can to find out more about any grace period you may be eligible for.

Your mortgage company is regulated by the Financial Conduct Authority (FCA), and they must abide by the FCA’s Mortgage Conduct of Business (MCOB) rules, which ensure that borrowers are treated reasonably and fairly. Your lender must work with you to devise an alternative repayment plan until you can resume regular payments. Repossession should only be sought as a last resort.

Find out more about house repossession proceedings and house repossession laws in our helpful guides. 

You may be able to find a temporary solution that reduces your outgoings and increases your income until your financial situation stabilises. For example, your lender might agree to accept reduced payments for a fixed period or to switch you to a different type of mortgage with lower monthly payments. If you can also rent out a room or access benefits to supplement your income, this might be enough to cover the shortfall until you can resume regular repayments. There are lots of organisations that offer free debt advice and may be able to help, such as the Step Change charity.

If your financial difficulties are not temporary and there is no way that you will be able to resume regular mortgage repayments, it’s better to act fast and sell the property as soon as possible to avoid mortgage debt building up.

Can You Sell Your House Back to the Bank?

selling home

If you’re experiencing financial pressure and mortgage repayments are starting to become unmanageable for whatever reason, then you could consider selling your property back to the bank before it is repossessed. However, this is not always the best option.

As your mortgage loan is a guaranteed financial transaction between you and the bank, legally, the bank can repossess your property and sell it by default on your payment obligations, which could leave you with little or no funds. If the bank looks to sell your property quickly and receives a lower than average price for it, it may continue to pursue you to pay the arrears you owe. After all, it’s the mortgage that your bank is interested in, not your property, and the mortgage will still exist until it is fully paid off.

Banks may also add extra charges that could increase your outstanding debt. Legal fees, sale commissions and other expenses could accrue, and you may be liable to cover all these extra costs. If the bank puts your property up for sale and it isn’t a quick and straight-forward sale, which it rarely is, you will still be responsible for making mortgage payments for as long as the property stays on the market. 

A bank may also provide you with the chance to declare “voluntary repossession” if you can no longer afford to make mortgage repayments. This involves writing a formal letter to the bank, voluntarily declaring that you can’t pay any longer and are giving up the property. This will involve the same process of selling, where banks or mortgage companies will take your property to market and sell your home, typically, for much less than it is estimated. If this occurs, the final price may be lower, which will result in greater remaining arrears, and it will take much longer to clear your debt. This can also take a toll on your credit score, which then causes complications when it comes to qualifying for a mortgage on a new property.

Regardless of your current financial issues or credit score, House Buyer Bureau offers a professional, quick and hassle-free way to sell your property for a fair and reasonable price with no hidden agency fees and costs. A quick house sale will give you the money to pay off your mortgage arrears and stop any more debt accruing.

Selling Your House with House Buyer Bureau

The best way to tackle outstanding arrears, manage missed mortgage payments and solve your financial troubles is to address the issue as quickly as possible. Avoidance could lead to more missed payments, more debt and more problems in the future.

Selling your home with a reputable and established cash home buyer like House Buyer Bureau allows you to solve your situation quickly and efficiently. We offer a streamlined process without the hassles, fees and delays inherent in a traditional sale via estate agents. By selling with us, homeowners can avoid the inconvenience of property viewings — we are set up to work 100% remotely, from valuation to completion of the sale — and walk away with a lump sum in as little as 7 days.

Call our friendly team of house buying experts, and let us offer our advice and expertise to help you get out of your mortgage arrears. We have the funds to buy any property in England and Wales (and some parts of Scotland) regardless of its existing condition, and we will offer the fairest price and pay in cash.

Contact us today for your initial cash offer.

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