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Can You Sell Your House If You Are in Mortgage Arrears?

23rd November, 2021

Falling into mortgage arrears can be incredibly stressful. There is a risk of home repossession, downgrades to your credit score, and penalty fees that you might incur with your lender. Mortgage arrears are actually more common than you think, and it’s important not to panic. If you’ve fallen into arrears on your mortgage then there are still options for you to meet your payments, manage your debt, or even sell your house whilst in arrears. We’ve compiled this handy guide to help you with the process of selling your house in mortgage arrears. Read on for more information or use the menu below to navigate easily. 

 

What are Mortgage Arrears? 

Being ‘in arrears’ on your mortgage means that you have at least one payment outstanding. A mortgage agreement is a legally enforceable agreement wherein you commit to pay back a loan in monthly instalments. If you miss one of these instalments then you enter what is known as ‘arrears’. 

Mortgage arrears can occur for a number of reasons. Some of the most common reasons that people enter mortgage arrears are unemployment, increasing interest rates, and mounting financial obligations. It’s important to act quickly if you enter mortgage arrears. Contacting your lender as quickly as possible and keeping them updated on the situation and your plan to resolve it could prevent them from taking drastic action. Lenders will typically charge a late payment fee if you miss payments, and if you fall behind on multiple payments this can start to snowball into quite a significant amount of debt. 

Your lender may initiate proceedings to repossess your home if you fall behind on multiple payments and have been in arrears on your mortgage for some time. This can be an incredibly stressful process and will incur additional costs. For example you will likely have to hire a solicitor to help with legal proceedings. Prevention is definitely the best route here. There are a number of support options available if you enter arrears on your mortgage. We’ve discussed some of the most helpful options below. 

Financial Support for Mortgage Arrears 

Just because you’ve missed a few mortgage payments does not necessarily mean that you will have repossession proceedings brought against you. If you are proactive and act quickly then you might be able to resolve the issue, or sell your home to get out of arrears. We’ve listed some of the most impactful things below that you can do to help your situation if you’re in arrears on your mortgage. 

  • Apply for breathing space. ‘Breathing space’ is a government scheme which allows you time to seek debt advice and find a solution to money problems. National Debtline offers a detailed explanation of Breathing Space. If you meet the eligibility requirements for Breathing Space then you will be granted a 60 day period to find the best possible solution to deal with your debts. It’s important to bear in mind that once you have had Breathing Space you cannot have it again for the next 12 months. 
  • Pay what you can afford. If you can’t afford to pay off your arrears immediately then you should ask for longer to clear the arrears. Make an offer to your lender to pay what you can afford immediately and explain why this is the most that you can afford. Showing an intention to repay what you can is useful in creating goodwill with your lender. 
  • Change to repayment mortgage. If you have an endowment mortgage then it’s possible that you can change your mortgage to a repayment-only mortgage. This means that you will be able to pay a smaller monthly repayment and therefore your mortgage will be more affordable. 
  • Increase your mortgage term. Mortgages tend to be spread over many years, known as the mortgage term. Extending your mortgage term gives you a longer time period to pay back your mortgage, which will in turn reduce the monthly amount that you need to pay back. It’s important to bear in mind that this will increase the total amount of interest that you repay, but it could mean that you are able to afford your repayments again and prevent repossession. 
  • Pay interest only. If you have a repayment mortgage (as opposed to an endowment mortgage), then you could potentially just service the interest part of your monthly payment. It’s likely that your lender will only allow you to repay like this for a limited period of time, but this could give you enough room to get your affairs in order. 
  • Capitalise your arrears. Capitalising your mortgage arrears means that the amount of your arrears is added to the amount of your total mortgage. This means that you’re able to repay your arrears over a longer period of time. You should be aware that this will increase your monthly payments, but it could clear a significant amount of immediate debt and relieve the pressure. 

These are great options to buy yourself time if you’ve entered into arrears on your mortgage or if you need to bring your monthly payments under control. If you have experienced a significant loss of income however, and you think you’re likely to enter arrears in the future, you may be better off selling your house. Below we discuss how you can sell your house when you’re in arrears on your mortgage.

How can I Sell My Home with Mortgage Arrears? 

Selling your home when in mortgage arrears can be a great option to pay off your debts and move to a smaller or cheaper home with more manageable repayments. If you decide that this is your preferred route, then taking action quickly is the best option.

If you delay and your house is set to be repossessed by your lender, they will likely put it up for auction. Selling the property yourself will likely let you achieve a higher price for your property. This is important if your mortgage level is close to the value of your house, if your lender sells the property for less than the outstanding amount of your mortgage then you will be required to make up the shortfall. 

If you’re selling your house to pay off your mortgage arrears you’ll typically have three different methods of sale to choose from. Property auction, use of an estate agent, or using a cash house buyer to buy your house for cash.

  • Property Auction. Choosing to sell your property through an auction is good in the sense that it can prove a degree of certainty around the date that your home will sell. It also typically progresses more quickly than an estate agent, and buyers tend to be more committed since they will pay a deposit to bid on the property. There are two important considerations to bear in mind when selling through a traditional auction. First is that auctioneers may try to encourage you to set a low reserve and starting bid price in order to create a bidding war and drive up the price. If it works, this can be a really effective way to achieve a high sale price. However it’s a risky option, particularly if you need to secure a price that pays off your mortgage arrears. The second consideration is time. You will likely have to wait a number of weeks after listing your property for the auction to take place, and then another few weeks for paperwork etc. to be completed. If you need to sell your house fast then this could throw a spanner in the works. 
  • Estate Agent. Selling your house through an estate agent is usually the best option to achieve the highest price for your property. Estate agents will also usually take on most of the workload, which removes some of the stress of selling your house. Bear in mind however that when selling through an estate agent you will be liable for both their commission and the typical costs of selling a house. This means that you’ll need to pay conveyancers, potentially cover the costs of some renovation work, and you’ll need to be available for viewings on your house too. It’s also worth noting that selling your house through an estate agent can be very slow. Estate agents don’t work to a deadline, which means that sales can drag on for some time. If you’re selling your home to get out of mortgage arrears then this option might be too slow. 
  • Cash House Buyer. A third option to sell your house or flat if you have arrears on your mortgage is to use a cash house buyer like SmoothSale. SmoothSale can provide you with a free, no obligation cash offer for your property. If you’re happy with the offer then we can buy your house for cash in a timeframe that suits you. The main advantages of using a cash house buyer are speed, flexibility and simplicity. Because we buy your house for cash using our own funds we can complete the sale process very quickly. In as little as seven days if that suits your onward plans. There are also no fees to pay. We cover all costs associated with the sale of your home and we’ll even cover your legal fees. The offer amount is the amount that you will walk away with. This is a huge benefit for homeowners who are selling their house or flat because of mortgage arrears, it gives certainty that you will receive the full amount in a quick time frame. 

Whichever option you’re considering to sell your house, SmoothSale can help. We offer a number of private house sale solutions including cash house buying, property auctions, and investor marketing. We’re confident that we can help you to sell your home quickly to pay off your arrears, so why not give us a try free of charge? Contact us today on 0800 368 8952 or get a cash offer!

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