Can I Sell My House with Mortgage Arrears?

Estimated reading time 10 minutes

With mortgage rates causing constant uncertainty for many, it is not uncommon to see people falling into mortgage arrears. Interest rates have been rising at such a pace that many people have been left feeling unsure as to whether they will be able to keep their homes.

With no sign of things changing and both lenders and the government coming together to offer mortgage forbearance measures to help people afford their payments, there comes a time when some homeowners must weigh up whether the option to look for a fast house sale is of more benefit. What if you have fallen into mortgage arrears though? Could you still sell your home to clear the debt and find a new home to live in? Luckily, yes, you can, and this can pave the way for you to be potentially debt free and able to rehome yourself much more affordably.

It isn’t always straightforward though. We all know the traditional method of putting your house on the market and completing a sale can be a slow, drawn-out process. So, with that in mind, in this edition of our property guides, we look at mortgage arrears and how you can sell your home.

What are mortgage arrears?

Mortgage arrears occur when you have missed one or more payments on your mortgage. Thus, if you have outstanding mortgage repayments, you are in arrears. This can happen for a variety of reasons, such as a change in your financial circumstances or a change in your mortgage terms.

You are not alone being in mortgage arrears

It can be a worrying time when you find yourself in debt, especially when the debt is linked to the place you call home. An important thing to remember though is that it is not unusual. Whilst not an ideal situation, and of course a little concerning for all who live in the property it is certainly not uncommon across the UK. It is thought that as many as 3% of all UK mortgage holders find themselves currently in arrears.

Exacerbated by the fallout from covid, recession and the cost-of-living crisis, affordability for many has been put to the test but there are solutions available. Forbearance as we mentioned earlier can often be of benefit, but this can sometimes prove to end up more costly and see your mortgage period extended way beyond its original terms.

Mortgage arrears should not be dismissed though or thought of as something that many are going through. Circumstances vary from person to person and if your arrears are bought on by your own carelessness, the lenders may not be as keen to offer support as they would be to someone that has suffered from ill health or a sudden change in circumstances. In fact, mortgage arrears can lead to repossession of the property if you do not seek a solution.

What to do if you are in mortgage arrears

The first thing you should do is contact your lender. Explaining the situation and offering potential solutions is a much better way to resolve the situation than just waiting to see what happens.

If you haven’t yet reached the stage of being in arrears but see that it is likely it will happen, contact the lender. You can then also apply for what is known as Breathing Space, a government scheme that gives you time to seek debt advice and work out solutions that may allow you to keep your home. You will be given 60 days to find the best option and during this time, no form of enforcement action can be taken against you. Just be aware that you can only apply for this once in a 12-month period and must owe a qualifying debt.

Then look at paying what you can afford. A payment of something is better than a payment of nothing. Quite often lenders will understand when there are underlying issues behind your late or lower payment. This can be seen as a good thing by some lenders. By showing your willingness to pay something, they are more likely to understand your circumstances and work with you to help resolve the problem you will appear in a more favourable light compared to someone that has just ignored the escalating problem.

How can I sell my house with mortgage arrears?

If you are noticing that the affordability of your home is no longer possible and have drifted into mortgage arrears, considering a quick sale might be the best option. Selling the home releases equity and leaves you with the cash that can clear the arrears and go towards a new home.

Perhaps the quickest option is via a cash house buyer, a company like Gaffsy for instance. That way you can have the house sold and funds within your account, in many cases, in as little as seven days.

This can remove the stress of falling into further arrears that could lead to repossession and as a result, see your credit file free from having a repossession order put against you.

You could also look at the traditional method of using an estate agent, this can be a gamble though as the market can be perilously slow and could see you waiting 6 months or more to complete a sale, all the while falling further into arrears.

An alternative, often not thought of, is a property auction. It can be a quick process but with a bidding war being the goal of auction houses it can go one of three ways. You either start low and see the price keep rising, meaning a win for all involved, you start too high and find nobody interested, or you start low and find a bidding war doesn’t take place resulting in a sale well under the true market value resulting in you still having a debt to pay. If you add on the fees for the auction house as well you could end up with a lot less cash than hoped.

What happens to the mortgage arrears when I sell my house?

Providing the sale covers the costs, any outstanding amounts owed for your mortgage will be paid off. Once deductions are made for any solicitor fees and estate agent fees, the remaining balance is yours to put towards a new home.

There is often talk of porting a mortgage when you sell a house but should you have accrued mortgage arrears, porting does not become an option.

Should negative equity also be a factor, you will still need to make payments to the lender until the remaining balance of the debt is cleared.

How many months mortgage arrears before repossession?

There is no set number of arrears you can accumulate before action is taken so we can’t answer this question with a definitive answer. However, it should be noted that you become in arrears as soon as you miss one payment. Action at this stage may not be taken and many lenders allow for a period of 15 days for you to make a payment and bring your account back in line.

Should it go beyond this period, the lender will likely contact you to find out what has happened. Rules state that you can offer a solution or even multiple solutions to your lender to solve the problem and they are duty-bound to consider what you propose. If your proposal is unworkable, repossession may start to be considered. They may also offer other alternatives to avoid the repossession route. This could include payment holidays or mortgage extensions for example.

Should the proposals not be deemed suitable by the lender and the steps to repossession begin, be aware it can be a long and slow process that results in no repossession taking place. It should be noted though, that if you have made no effort to contact your lender or work to a suitable resolution, there is a far greater chance of your home being taken away from you and put up for sale via auction.

What is an IVA?

An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and your creditors to pay back the debt you owe over a period of time. During this time, you make monthly payments to your creditors. This payment will be based on what you can afford to pay. An IVA must be approved by the court and creditors are obligated to abide by it. Once you have an IVA your lender should stop charging interest on your debt.

Can I sell my house when I have IVA?

Yes, you can sell your house when you have an IVA. However, you will need to get permission from your creditors before you can do so. You will also need to make sure that the proceeds from the sale are used to pay off your creditors. It is important to speak to a qualified financial advisor before making any decisions.

Does Gaffsy buy houses in mortgage arrears or houses covered by an IVA?

Yes, Gaffsy buys houses in mortgage arrears and houses covered by an IVA. We can purchase your property quickly and for cash, allowing you to pay off your arrears and move on with your life. We can work with your lender to ensure the mortgage is paid off and any arrears are covered. So get in touch today for a free no obligation cash offer for your property.

As interest rates rise, more and more people are falling behind on their mortgage. Once behind it can be difficult to catch up and get back on track. With the Financial Conduct Authority warning that 750,000 households in the UK are at risk of defaulting on their mortgage at some point in the next two years, more and more people are facing difficult choices. This guide looks will cover what you can do if you fall into mortgage arrears.

What is a CCJ?

A County Court Judgment (CCJ) is a court order that is issued when a creditor takes legal action against you for an unpaid debt. The CCJ will state how much you owe and when you must pay it. If you do not pay the debt, the creditor can take further action and often repossess your property.

Why should I avoid getting a CCJ?

You should avoid getting a CCJ because it can have a negative impact on your credit score. This can make it more difficult to get credit in the future, as lenders may view you as a higher risk. A CCJ can also stay on your credit record for up to six years,

Can I sell my house to avoid a CCJ going on my credit record?

Yes, you can sell your house to avoid a CCJ going on your credit record. However, you will need to make sure that the proceeds from the sale are used to pay off your creditors. It is important to speak to a qualified financial advisor before making any decisions. From a CCJ being issued you have 30 days to repay the debt before it goes onto your credit record.

How long do mortgage arrears stay on my credit file?

Should there be any missed, late, or part payments, they will be logged on your credit file for six years. This can have a damaging effect on any future credit applications such as credit cards, loans, or mortgages.

The fastest option to sell a house with mortgage arrears is to speak to a we buy any home specialist like Gaffsy. No matter the location, the condition or its status, the property experts at Gaffsy are happy to help. In fact, with a free cash offer available, you could have your house sold and the mortgage arrears cleared in just seven days! Why not contact our team today to find out how we can help?

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