How To Sell Your House If You Are In Arrears

Each year, nearly five thousand homes are repossessed throughout the UK because people simply cannot make ends meet. If you’re in mortgage arrears, you’re not alone. Many people find themselves in the same situation year after year, and there are several things you can consider if you end up there too. Can you sell a house if in arrears? Absolutely. You can sell your home to pay off the debt, but you do have other options, too. The most important thing to remember, though, is that you’re not alone, and help is just around the corner.

Mortgage Arrears is a Fairly Common Problem

Nearly 80,000 homeowners with a mortgage in the UK find themselves in arrears every single year. Inf act, it’s almost 3% of all mortgage holders who find themselves in arrears, and those numbers are quite a bit worse thanks to the COVID-19 pandemic. While arrears numbers took a slight dip during the mortgage holidays lenders offers to help homeowners cope with the economic challenges of the pandemic, the reality is that they came right back up after the UK reopened for business.

As the recession begins to deepen thanks to the economic slowdown that has resulted from the pandemic and other world events, many people will begin to face arrears once again. Unemployment is increasing, and thousands of workers will be unable to find jobs as the financial support systems that were created by the pandemic begin to fall away. It will be tougher and tougher for some to find the money to make a mortgage payment, which could eventually lead to mortgage arrears.

It’s important for anyone struggling with mortgage payments to understand that falling into arrears is almost unavoidable at times, but there are ways to get homeowners back on their feet. Whether you fall into arrears because you had an unexpected redundancy or you found yourself suddenly unable to work because of a serious illness like long COVID, there are things you can do once you find yourself in that awkward financial position.

Can You Sell a House if In Arrears?

Many people who find themselves in arrears decide to sell their homes. There are lots of reasons to do so, too. It can help you avoid repossession. It can also help you pay off other debts and free up a bit of cash so you can find a fresh start in a new area. In many cases, if you’re having trouble making ends meet because of financial issues, selling your home might allow you to relocate to a less expensive area and get back on track. It’s easy to sell your home if you’re in arrears, even if you’re fairly far behind with your repayments. If you have enough equity in your home, selling it allows that equity to release, which will leave you with quite a bit of money you can clear your arrears with and buy a more affordable property or rent a more affordable choice for a while.

If you’ve fallen too far behind on payments, your home will be repossessed, and once it reaches this point, it will usually be placed for auction by the mortgage lender. Once you’ve reached that stage, you’ll typically be unable to sell your home and release the equity trapped in it. That’s why it’s so important to talk to your mortgage provider the moment you find yourself in trouble. You can immediately begin to find solutions to help you avoid repossession and gain access to the equity. Should they repossess your home and it doesn’t sell for enough to cover the balance of your loan, you will have to continue to make payments on the loan itself even though you no longer own the property.

If, however, you work with a home buyer, even cash for homes buyer, you will likely get the money you need to repay your mortgage and avoid repossession entirely.

It’s important to note that repossession may mean affecting your credit applications for almost anything well into the future, including another property. That can make it incredibly tough to get the things you want in life. Paying off your mortgage with a sale, though, is a great way to ensure that doesn’t happen. Best of all, you’ll get to keep anything that’s left to help you pay off your current bills.

Can Lenders Still Repossess Homes?

The Financial Conduct Authority – or FCA for short – actually stopped home repossessions during the COVID-19 pandemic. For nearly a year, homeowners were completely protected from having their homes taken over if they were in arrears. Unfortunately, however, the ban on home repossessions expired in April of 2021, so even if you lost your job because of the pandemic or you lost income as a result of it, you can now have your home repossessed once more. While lenders have introduced several programs to help people through this time period, if you don’t apply for those programs or talk to your lender, it’s hard to get any help at all.

Avoiding Home Repossession

If you hope to avoid home repossession so you can deal with the arrears, the best first step is to talk to your lender the moment you know you’re going to miss a payment. In most cases, a single missed payment puts you at risk for falling into arrears, and waiting on your lender to contact you is always going to be the wrong decision. Most lenders will give you a grace period after your house payment was due to come up with the extra money if you are struggling. Usually that time period is between ten and fifteen days. Even if you can’t make that, though, you can still make up the payment, but you will likely be charged a late fee. That fee is usually between five and ten percent of your monthly payment amount, and while it may not seem like much, if you let it stack up or you continually make late mortgage payments, the fees are likely to become unmanageable in a hurry.

Most mortgage lenders will work with you to come up with a new repayment plan or help you resume regular payments on schedule. They’re all regulated by the FCA, and they have to abide by the Mortgage Conduct of Business rules. Those rules help to make certain that all buyers are treated fairly, and one of the rules is that if you cannot make your regular payment, they must do what they can to come up with an alternative arrangement to help meet your needs. In every case, repossession is the last possible resort. The temporary solutions they offer aren’t always going to be ideal, but they can usually help you reduce your overall monthly bills and increase your income until you see your financial situation change significantly. It’s possible for lenders to agree to reduced payments for six months or even to change your mortgage a bit to give you something with lower payments for a longer period of time.

If you discover that your financial difficulties are not going to be temporary, the best next step is to sell your home as quickly as possible. If you’re certain you cannot resume mortgage payments, that will allow you to act quickly so your mortgage debt doesn’t build, placing you into further trouble with the lender.

Can I Sell My House with Mortgage Arrears to the Bank?

If you’re in financial trouble, you may wonder whether it is possible to actually sell your house back to the bank. There are property owners who make this choice, but it’s not always the best option, and it’s certainly not in your best interest as a homeowner.

Your mortgage loan is a legal transaction between you and the bank. The bank can repossess the property if you default on any of your payment obligations. That means you lose any equity you’ve built up in your home. If the bank buys the property back from you, they may pay a lower-than-average price, far below what you might get on the open market. While that may satisfy the mortgage debt you owe, it may not give you access to all of the extra money you built up in your home. Moreover, if the sale of your home doesn’t actually satisfy the mortgage debt, the lender may add extra fees that increase the overall debt. Those fees could include the cost of a solicitor, a sales commission for the estate agent involved, and any other expenses that might get tacked on to the sale of your home. You’re even responsible for the mortgage payments while your home sits on the market.

Is Voluntary Repossession a Good Idea?

Some lenders offer those in arrears the chance to declare voluntary repossession if they cannot afford their mortgage payments. In most cases, you will write a letter to the bank declaring your inability to make your monthly mortgage payments and your desire to give up the property. This initiates the sale of your home, and as with a sale back to the bank, it goes for much less than it might be valued at on the open market. This also takes a serious toll on your overall credit score, which may mean you cannot qualify for a new property in the future. Voluntary repossession is never a good idea. Instead, trying to sell your home through alternative methods is a far better option.

What to Do Next If You Know You’re About to Be In Arrears

If you know you can’t make your next mortgage payment, the key is to take action as soon as you realise it’s a problem. One of the best first steps you can take is to apply for Breathing Space. This is actually a government scheme that gives you time to find debt advice and a solution to the problem. You can contact the National Debtline to get more information, but in general, if you meet a few eligibility requirements, you will be given 60 days to find the best option to help you handle all of your debts. Legally, all enforcement action and contact from creditors must stop for those 60 days, and none of them can charge you an additional interest on your debt during that period. To qualify, you must owe a qualifying debt, live in England or Wales, and not have a debt relief order against you. Additionally, you can’t have had breathing space within the last twelve months. It is also possible to have a mental health crisis breathing space. If you are having mental health crisis treatment currently, you can get the same breathing space without working with a debt advisor. Instead, your carer can apply for the breathing space for you to help give you the time you need to heal.

The next step you should take is to begin paying what you can afford to pay off your arrears. Make an offer to your lender with regard to pay what you can afford immediately, and explain to them why that’s all you can afford right now. For example, if you were made redundant, you can let your lender know that and that you’re currently searching for a new position. That may help create some good will with the lender, as they will then understand that you are doing what you can to repay your debts.

The next step you may want to take is to actually change your mortgage. If you’re currently in an endowment mortgage, it is possible to pay a repayment-only mortgage that will give you a smaller monthly payment amount. It is also possible to increase your overall mortgage term, which will give you a much longer term to pay your mortgage, thus reducing the amount that you owe month to month. You may also work with the lender to just pay the interest on your monthly mortgage for a short amount of time, which will give you enough time to understand how to begin paying the full amount again.

Ways to Sell Your Home Quickly

If selling your home makes the most sense when you’re in arrears, there are a few ways to make that home sale happen fast. You can certainly move forward in the traditional manner with a property sale and an estate agent. If the market is moving slowly in your area, though, this may not be the best overall option. It can take up to four months to process a home sale in the traditional manner even if the market is hot.

Fortunately, there are other ways to sell your home. You could sell it at a property auction. With this method of the home sale, you can be reasonably certain that your property will sell on a certain date. Usually, this moves faster than working with an estate agent, and buyers are far more committed in this process. There are a few things to remember, though. First, auctioneers will encourage you to set a fairly low reserve and starting bid so they can create a bidding war and increase the overall price of the home. When this strategy works, it works quite well for everyone involved. When it doesn’t work, though, you may not get enough proceeds from the sale to actually pay off the mortgage. Second, remember that you will likely get quite a bit less from this method of selling your home than you might get on the open market. That’s because the people who frequent property auctions tend to be property investors who are looking for a fast bargain. In some cases, you may only get 50% of your property’s price. Additionally, you will have to pay the auctioneer a fee of 3% after the sale of your home.

One other option is to work with a cash home buyer. This is the preferable option for many people because it’s a fairly quick process. Cash home buying companies are usually investors who are looking to scoop up homes for a decent price, put a bit of renovation work into them, and then either rent them to tenants or sell them at a higher price. You tend to get more out of these sales than you might at an auction. In general, you can expect to make 75% or more of the value of your home, and you won’t pay any additional fees in this setting. Instead, the cash home buying company will handle everything from the survey fees to those of your conveyancing solicitor. Maybe the best part about these kinds of sales, though, is the fact that they can be completed in as little as two weeks, which may help you get out of arrears faster and move forward with your life.

The Bottom Line

Mortgage arrears cases are on the rise, so if you find yourself with unpaid mortgage debts, just remember, that you do have options. If you’re asking yourself “Can I sell my house with mortgage arrears?” the answer is a resounding yes. You just need to work with the right people to make it happen.