Selling a house with mortgage arrears

You can sell a house with mortgage arrears. You still own it until a lender repossesses it, and when the sale completes your solicitor pays off the mortgage, including the arrears, from the sale money. But selling is not the only answer, and it shouldn't be your first step. Lenders have to treat repossession as a last resort, and there may be a way to keep your home.

This guide covers where to get free help, what your lender must do, the options that can keep you in your home, and how to sell if that turns out to be the right choice. It's general information for England and Wales. The rules are different in Scotland.

Get free, independent advice first

Before you decide anything, speak to a free debt adviser. They can go through your budget, talk to your lender for you, check for benefits you may be missing, and set up a Breathing Space if it would help. These services are free and independent:

• MoneyHelper: 0800 138 7777. Free money guidance and a tool to find debt advice near you.
• Citizens Advice: 0800 144 8848 in England, 0800 702 2020 in Wales.
• StepChange: 0800 138 1111.
• National Debtline: 0808 808 4000.
• Shelter: 0808 800 4444 in England, or Shelter Cymru on 08000 495 495 in Wales.

You don't need to pay anyone to deal with your lender for you. If a firm asks for a fee to sort out your arrears, call one of these services instead.

Speak to your lender

Contact your lender as soon as you know you'll struggle, even if you've already missed payments. The Financial Conduct Authority (FCA) says talking to your lender won't affect your credit file, although any arrangement you agree will be recorded on it.

Lenders must follow the FCA's rules on arrears (in its mortgage rulebook, MCOB 13) and its Consumer Duty, which requires firms to put customers' needs first. Under MCOB 13, your lender must:

• deal with you fairly and tell you about free debt advice
• try to agree a realistic way to repay the arrears over a reasonable period
• consider changes such as a longer term, a different type of mortgage, or deferring or reducing interest
• let you stay for a reasonable time to sell if no affordable arrangement is possible
• not repossess unless all other reasonable attempts to sort things out have failed

Most lenders have also signed the government's Mortgage Charter. The FCA says its 47 signatories cover about 90% of the mortgage market, and they've agreed not to force you out of your home without your consent within a year of your first missed payment, except in exceptional circumstances. Ask your lender whether it has signed.

Put any offer in writing, keep copies of letters, and keep paying what you can, even if it's less than the full amount.

Options that can keep you in your home

Option	How it helps	What to check
Repayment plan	You pay your normal amount plus something towards the arrears	It must be affordable, or it will break down
Longer term, or interest-only for a while	Lowers your monthly payments	You'll usually pay more interest overall
Adding the arrears to the loan	Clears the arrears in one go	Your monthly payments go up
Support for Mortgage Interest	A government loan towards your mortgage interest	Only if you get certain benefits
Mortgage payment protection insurance	Pays the mortgage if you can't work, if you have a policy	Check the policy terms and claim early
Taking in a lodger	Extra income each month	Check with your lender first

Shelter suggests a simple way to work out an arrears offer: divide the arrears by the number of months left on your mortgage. For example, £3,000 of arrears with 10 years (120 months) left is £25 a month on top of your normal payment. A court can often stop repossession if you can show you'll clear the arrears by the end of the term.

Support for Mortgage Interest (SMI) is a loan from the Department for Work and Pensions, paid straight to your lender. You need to be getting Universal Credit, Pension Credit or income-related Employment and Support Allowance, and on Universal Credit you normally need to have claimed for 3 months in a row first. It usually covers interest on up to £200,000 of your mortgage. It doesn't cover arrears. You repay it, with interest, when you sell, and if there isn't enough left after the mortgage and other secured loans, the rest is written off. The rates change, so check GOV.UK for the current figures.

Breathing Space (the Debt Respite Scheme) gives you up to 60 days' protection while you get debt advice. Your lender must pause action over the arrears you had when it started and freeze interest and charges on them, but you still need to keep up your normal monthly payments if you can. Only a debt adviser (including some councils) can set one up, and you can usually have one once every 12 months. There's a separate version for people getting mental health crisis treatment. It applies in England and Wales.

When selling might be the right choice

Selling can make sense when an adviser has looked at your budget and the numbers don't work in the long run: the arrears can't realistically be repaid, or the mortgage won't be affordable even after changes. If it comes to that, selling yourself is usually better than waiting to be repossessed. Citizens Advice says a lender selling a repossessed home is likely to get a lot less than you would, and the FCA says a sale arranged with your lender can leave you better off than other routes.

Think about where you'll live next. If you might need council housing, talk to your council's housing team early and apply before you move out. Money left over from a sale can affect benefits: Shelter says you can't get Universal Credit if more than £16,000 is left, while less than £6,000 usually makes no difference.

How to sell a home with arrears, step by step

1. Tell your lender you're selling. Under the court pre-action protocol, a lender must consider postponing court action if you show you're marketing the home at an appropriate price, based on professional advice.
2. Get valuations. Most estate agents value homes for free. Get two or three, and compare them with recent sold prices nearby (see how to get a house valuation).
3. Ask about an assisted voluntary sale. Some lenders run schemes that can pay selling fees, pause court action or lower your payments while you sell.
4. Share the details. Your lender may ask for the sale particulars, the Energy Performance Certificate (EPC), any offers, and permission to speak to your estate agent and conveyancer.
5. Keep paying what you can. You're responsible for the mortgage, insurance and upkeep until the sale completes.
6. Ask the court for time if it has got that far. A judge can suspend a possession order to let you sell, usually only if the sale will clear the mortgage debt. Bring evidence such as the agent's details or an offer.
7. Completion. Your solicitor gets a redemption statement (the exact amount needed to clear the mortgage), pays the lender from the sale money, pays the selling costs, and sends you anything left.

Which way to sell?

Route	Price	Speed	Worth knowing
Estate agent	Usually the highest	Often several months	Leaves the most to clear the debt, if your lender gives you time
Auction	Uncertain, with fees	Weeks once listed	Can suit homes that are hard to sell
Cash buying company	Below market value	Can be a few weeks	Less money to clear the debt
Sale and rent back	Usually below market value	Varies	Firms must be FCA-authorised, and the risks are serious

If your lender will give you time and the home is in reasonable condition, an estate agent sale will usually leave you with the most money, which matters when every pound goes towards the debt.

Be careful with quick-sale offers. Shelter warns that some companies make money by buying homes for less than they're worth, and the FCA says some quick-sale buyers offer up to 35% below market value. A quick cash sale can still make sense if an eviction date is close, the home won't sell on the open market, or the costs of waiting keep growing, as long as the price clears what you owe or your lender agrees to it. Read how to check a cash house buyer first, and ask whether the buyer is a member of The Property Ombudsman or the NAPB.

Your House Bought is a cash buyer. We make an offer within 24 hours, pay your legal fees, and you choose the completion date. Our offer is below market value, we explain how we worked it out, and there's no obligation to accept. Talk it through with your debt adviser before you accept any offer, including ours.

If the sale won't cover what you owe

If your home is worth less than the mortgage and arrears plus selling costs, you'll need your lender's permission to sell. If it refuses, you can complain to the Financial Ombudsman Service, which can order a lender to let you sell. Our guide to selling a house in negative equity explains more.

The amount left owing is called a shortfall. You still owe it, but it's no longer secured on a home, so it's usually treated as a lower-priority debt. National Debtline sets out the main options: an affordable payment plan, asking the lender to write off some or all of it, or a debt solution such as a Debt Relief Order (for total debts up to £50,000) or bankruptcy.

How long a lender can chase a shortfall:

• The law: a lender generally has 12 years to take court action for the money it lent and 6 years for interest (Limitation Act 1980, section 20). A payment or a written acknowledgement of the debt can restart the clock.
• FCA rules: if your home was repossessed and sold, the lender must tell you within 6 years of the sale if it intends to recover the shortfall.

If you might need a Debt Relief Order or bankruptcy, get advice before you sell. Citizens Advice warns that selling for less than the true value in the 2 years before applying can stop you getting a Debt Relief Order, and in bankruptcy a sale below true value in the previous 5 years can be reversed.

What to avoid

• Ignoring letters or court papers. It's never too late to get advice, and going to a hearing gives you the chance to ask for time.
• Handing back the keys. Shelter warns against this: you'd still owe any shortfall, and it can affect your credit rating, benefits and council housing options.
• Paying upfront fees to anyone who promises to clear your debts or keep you in your home. The FCA warns that struggling borrowers are targeted by firms that don't act in their interests, and by criminals.
• Misstating the sale price to your lender. The FCA says this is fraud.

If court action has already started, read how to stop repossession for what happens at the hearing and what a judge can do.