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A guide Mortgage Arrears How to cope with mortgage arrears Mortgage Arrears This guide provides information on how best to cope with mortgage arrears. It will help anyone who has a mortgage on their house or flat, but is not designed to cover business loans or business premises. Your home may be repossessed if you do not keep up repayments on your mortgage. The law is complex and if you do not act when the mortgage arrears arise, you could lose your home. The guide only offers an introduction to the law in England and Wales. If you need more detailed information, you should get advice from a local Shelter advice service or a Citizens Advice Bureau; contact Shelter’s dedicated homeowner helpline on 0300 330 0515, or Shelter’s free housing advice helpline on 0808 800 4444 (open from 8am to 8pm on Mondays to Fridays and from 8am to 5pm on weekends, calls are free from UK landlines and main mobile networks: Virgin, Orange, 3, T-mobile, Vodafone and O2); or visit shelter.org.uk/mortgagearrears Alternatively, contact one of the other organisations listed at the back of this guide on pages 25–26. If you live in Scotland or Northern Ireland the law is different and you should contact Shelter Scotland or the Housing Rights Service respectively. 2 Contents Mortgage arrears 4 Working out your options 4 Talk to your lender 5 Keep making mortgage payments 5 Easy steps 6 Ways to pay your arrears 6 Shared ownership mortgages 7 Selling your home 7 Government initiatives 8 Other options available to you 8 Claiming on insurance policies 8 Changing your mortgage lender 8 Remortgages/further loans 9 Increasing your mortgage 9 Can I rent out a room, or my whole home? 9 Claiming welfare benefits 10 Government mortgage rescue schemes 11 Private mortgage rescue schemes 12 Relationship breakdown, death, incapacity and bankruptcy 12 Negative equity 12 Should I hand in the keys? ` 13 Regulation and complaints 13 Your lender is taking you to court 13 Court forms 14 What the lender must do 14 Can I get legal aid? 14 Help at the court 15 Do I have a defence? 15 What will happen at court? 16 The possible outcomes 16 Can I do anything after a possession order has been made? 17 Bailiffs’ warrants and bailiffs’ notices 18 Costs 18 Sale by the lender after repossession 18 Can I apply as homeless? 18 Tenants of borrowers 19 Appendices 19 A mortgage is a loan that is ‘secured Working out your options on’ your home. First, you need to ask yourself these There are many reasons for taking questions: out a mortgage. The most common n Are your difficulties likely to be reason is that you want to buy a long or short term? home. You cannot afford to buy it n If you face redundancy, or have an outright, so you have to borrow from illness, will you be able to return to a mortgage lender such as a bank work and, if so, when? or building society, and you can do n Can you take temporary or this by a mortgage. This means that part-time work to ease financial the lender takes a ‘legal interest’ in pressure? your home. For information about n What resources can you draw the different types of mortgage see on? Can you claim on a mortgage page 19 payment protection plan? Do If you fail to make the mortgage you have a redundancy payment, repayments, then the lender can take savings or other assets? Can you steps to make you move out, and sell claim welfare benefits? your home. Fortunately, problems n What is the property market like? can often be resolved before this Are homes selling well, or is the stage is reached. market difficult? n Are you using your home fully? Could you live somewhere smaller Mortgage arrears or in a cheaper area, or could you rent out a room? If you fail to make a mortgage n Do you have other debts? If you payment when it is due, the missed do, get advice about dealing payment is said to be ‘mortgage with all your creditors. It is arrears’. Mortgage arrears can lead essential that the payment of your to you losing your home. However, mortgage, utility bills and council if you speak to your lender as soon tax take priority. as you have financial problems and you get advice when you need it, you You should also work out your may save your home. Most lenders budget to see what you can afford, will give you a reasonable amount of and to see whether you can make time to pay what you owe. savings on non-essential spending (eg gym membership, meals out). The budgeting forms on page 22 can help you do this. 4 Talk to your lender to do. Make sure you are honest and It is important to talk to your lender realistic. It will not help you if you if you have arrears or have financial agree to make payments that you problems that could lead to arrears cannot afford. as soon as you can. There are things Make sure that your lender has that your lender can do to help you, your latest contact details so that and your lender is more likely to they can contact you easily. help if you explain the problems you If you fail to contact your lender, are facing. Don’t ignore their phone you can expect to receive reminder calls or letters as this will only make letters and for the lender to begin matters worse. Don’t be put off legal action to recover the arrears, because you think your situation is and the costs of this will be charged hopeless. There is often a solution, to you. but it usually involves talking to your Lenders are usually helpful, and lender. Most lenders see taking you should be able to provide a list of the to court as a last resort. costs of various options open to you, You can telephone first, but so that you can compare them. You a meeting at a local branch of can also get independent advice your lender or a longer telephone from the organisations referred to at discussion may be necessary at a the beginning of this guide. later date. The first person you speak to is not necessarily a person who Keep making mortgage payments has the knowledge or authority to Making mortgage payments has to help you. You may need to explain be a top priority, as you risk losing the problems you are facing more your home if payment problems than once. You should be prepared continue. It is essential to keep to answer questions about your paying as much as you can afford. circumstances, for example: This will help to stop your mortgage n details of your income, outgoings, arrears from rising too quickly. It debts and savings – the budgeting will also show your lender that you forms on page 22 can help you set are serious about trying to tackle these out the problem. The more you get into n any steps you may have taken to arrears on your mortgage payments, increase your income and to the more likely you will be to lose your make savings home. n what payments you can make. If you have a large sum available, like a redundancy payment, it may If you can, write down what you be tempting to pay off some, or tell your lender and what you agree all, of your mortgage. This may not 5 always be sensible, because you income fluctuates, or a fixed rate may need money for any remaining if you are on a fixed income. You mortgage payments, household bills, usually have to pay a fee for a and perhaps for retraining or setting new mortgage and a charge for up a new business. Also, you may bringing the old mortgage to an have to pay a penalty if you pay your end, so think about whether a mortgage early. change is worth it. It is not advisable to use your n If there are any errors on your credit card to pay your mortgage. mortgage account, talk to your The interest rates for borrowing lender as early as possible. money on a credit card are high, n Can you find cheaper contents, much higher than the rates you pay buildings, life insurance, or on your mortgage. If your credit mortgage protection insurance? card bill is not paid, your credit card company could apply to the court for Ways to repay the arrears a ‘charging order’ on your property. If You will have to pay, over a you still do not pay what you owe, the reasonable period, the arrears that credit card companies can go back have built up as well as your regular to court for an order to force a sale mortgage payments. There are a of your home to recover the debt. number of options you can discuss with your lender to help you to keep Easy steps your home, such as: There may be steps you could look n Allowing you to pay your arrears into, such as: by instalments over a few months. n You may be able to make changes If you need more time, the lender to your mortgage, for example, may want to capitalise your make reduced payments for arrears (see fifth bullet below). a while or switch to a different n Allowing you to pay interest only, interest rate. You may be able or to pay reduced amounts. Your to change your payment date monthly payment will be reduced, from early in the month to later in especially if you have had a the month, which may help you mortgage for many years. You budget if you move the mortgage will have to catch up later, but payment date to shortly after your this may be useful if you have a pay day. temporary payment problem. If n Your lender may have a more you switch to paying interest only suitable mortgage. You may you may be eligible for help under need a flexible mortgage if your the Government’s Homeowner 6 Mortgage Support Scheme (see The sooner you contact your ‘Government mortgage rescue lender the more options are likely schemes’ on page 11) to be available to you. The options n Allowing you to pay less or no available can depend upon the type interest for a short period. You of mortgage you have. These options will have to catch up, and it is will all cost you more money over only likely to be agreed for a short the term of the mortgage. Some ‘payment holiday’. may lead to additional charges by n Allowing you to extend the your lender, so you may want to get mortgage term, which will further advice before using one of reduce your monthly payment by these options. spreading the repayments over more years. This may be sensible Shared ownership mortgages if your mortgage ends before your If you have a shared ownership expected retirement age. property, as well as talking to your n Adding the arrears to the lender, you should speak to the mortgage debt (‘capitalising the housing association that owns a arrears’). This means you will share in your home. The housing pay the arrears over the whole association may be willing to buy of the mortgage term and not part of your share in your home immediately. You will have to pay (a process known as ‘staircasing interest on the capitalised arrears. down’). Your mortgage payment n If you have an endowment policy would be reduced, but your rent your lender may agree to change would be increased. your mortgage to a repayment mortgage. As long as you have Selling your home been paying the endowment for Sometimes your financial problems some time (usually about two will be long-term and you know it will years), it will have a surrender not be possible for you to pay off the value, which can be used to pay arrears, so it may be necessary for arrears or pay off part of the you to take steps to sell your home. loan. Often the surrender value If the lender takes you to court then is a reduction in value of the sells the property, it is likely that it endowment, so you might sell will sell for less than you might have to one of the companies that obtained on the open market. A specialise in buying endowments lender may accept lower payments at a higher price than the for a period to allow you to sell the surrender value. property. You will need to get the lender’s written permission to sell 7 if the proceeds of a sale will not pay Other options available to you off your outstanding mortgage (see ‘Negative equity’ on page 12). You Claiming on insurance policies should be very cautious of selling to If you have a mortgage payment private sale and rent back schemes protection plan, check whether or any other ‘quick sell’ schemes, you can make a claim under it. For as you will usually be paid much temporary unemployment, your less than the market value of your plan may only pay interest for a home (see ‘Private mortgage rescue limited period, but if you have a schemes’ on page 12). long-term illness or disability your You may decide that you will plan may provide for payment of the have to sell your home even though whole loan. Check your insurance you cannot afford another smaller before you make decisions that may or cheaper one. You need to think affect it. For example, your policy carefully about where you will live. If may allow you to claim if you are you are going to apply to the council made redundant but not if you take as homeless then you are strongly voluntary redundancy. If you do advised to get advice first as selling not understand your policy or your your property could reduce the help lender tells you that you can’t claim, you would get (see ‘Can I apply as get advice as soon as possible. homeless?’ on page 18). Selling your home may also be appropriate if you Changing your mortgage lender are happy about finding a flat to rent If you have arrears, it will be difficult privately, or you can move in with to get a new mortgage on good family or friends. terms. The new company will ask detailed questions about your Government initiatives circumstances, and these must You may be eligible for help under be answered fully and honestly. one of the schemes developed However, if you foresee a change in by the Government to help circumstances (eg you are planning homeowners in financial difficulties to start a family), it may be possible (see ‘Government mortgage rescue to reduce your mortgage payments schemes’ on page 11). by getting a different mortgage either from your existing lender or from another lender. You might get a lower interest rate, a fixed rate, a longer term, or even ‘cashback’ when you take your mortgage. 8 Remortgages/further loans Increasing your mortgage You may be tempted to pay off You may need to pay a large bill, your mortgage arrears, pay other such as for major house repairs or debts and get extra money to deal improvements, and this may give you with future problems by arranging a temporary cash-flow problem. It a remortgage, second mortgage may be sensible to ask your lender or secured loan. Some ‘debt to advance further money on your management’ companies offer mortgage. Although, it is usually you a loan to pay off your current cheaper to use your savings than mortgage and all your other debts. borrowing more money in order to However, there may be higher pay for one-off bills. interest rates than you are currently paying, large arrangement fees, Can I rent out a room, or my whole and a shorter period to pay off the home? loan. Advertising can be misleading, One way of increasing your income sometimes representing that the is to let out a spare room in your lender will provide impartial advice, home, or even by letting out your when it will not. whole home. Your mortgage may You should usually avoid trying prohibit letting, or you may need the to borrow further to pay off your permission of the lender, so always mortgage debts. Even if the loan is check that first. If you live in a flat, not secured against your home the you need to check what your lease lender could apply to the court for a says as well. ‘charging order’ on your property if Any rent that you receive is you do not pay. If you still do not pay income, and can affect the level of what you owe they can go back to the income tax you pay or the welfare the court for an order to force a sale benefits you receive. You must tell of your home to recover the debt. HM Revenue and Customs if you pay This can apply whether the loan is tax and Jobcentre Plus if you are in from a reputable firm, such as a receipt of welfare benefits. credit card company, or a loan shark. Under the Government’s Rent a You could easily make your room scheme if you take in a lodger position worse, so you should always no income tax is paid on the rent get independent advice before trying you receive up to £4,250 per year to borrow or remortgage your way (about £80 per week). Income tax is out of difficulty. paid on any rent you receive above £4,250 a year. You can claim the ‘Rent a Room’ exemption if you tell 9 HM Revenue & Customs. If you are in paid. If you are in receipt of pension receipt of income support, income- credit SMI can be paid straight away. based jobseeker’s allowance, or If you are in receipt of income-based council tax benefit, some of the rent JSA normally you will only get SMI for you receive is disregarded when a maximum of two years. the Jobcentre Plus calculates your SMI can be paid on interest entitlement to benefit. If you lived payments on loans up to the value alone before renting out a room you of £200,000, even if your total loan will no longer be entitled to the single is more than this (eg if your loan is person discount of 25 per cent on for £250,000 you will only get SMI your council tax bill. Although if your for the interest payable on £200,000 lodger is on a low income or benefits of that loan). If you are in receipt of you may be entitled to a second adult pension credit or you claimed before rebate. Further information about the 5 January 2009 SMI will only be rent a room scheme can found on paid on interest payments on any the Directgov website (see ‘Useful loan up to the value of £100,000. organisations’ on page 25) SMI is calculated at a standard rate, regardless of the interest rate you Claiming welfare benefits actually pay on your mortgage – the If you (or your partner) are claiming rate is fixed at 6.08 per cent until 30 income support, income-based June 2010 (details of the standard JSA, income-related ESA or pension rate after that date will be found on credit, you may be able to get help shelter.org.uk/mortgagearrears with paying your mortgage, This or by contacting Jobcentre Plus) type of help is known as support If you suffer a financial setback for mortgage interest (SMI). SMI is such as the loss of your job, you paid direct to your lender. The loan should check what benefits you must have been taken out to buy can claim, unless you have another your home, an additional interest in job starting almost immediately. your home (eg buying the freehold You may not qualify for a benefit or buying your former partner’s immediately but you may after your share), or for essential repairs housing costs are taken into account. or improvements. If part of your Even if you do not qualify for benefits mortgage was used for non-housing at all, you may claim national costs (eg buying a car) you will not insurance credits while out of work, get SMI for interest on that part of and can get advice about when you the loan. might be able to claim if you are Normally you will have to wait 13 unable to return to work. weeks after claiming before SMI is 10 You can get information about You must have explored all other welfare benefits by contacting options with your lender before you Jobcentre Plus or visiting the can be eligible. MRS is administered Directgov website (see ‘Useful by local councils. organisations’ on page 25). The Homeowner mortgage support (HMS) scheme only helps Government mortgage rescue those whose financial difficulties are schemes likely to be temporary. You have to The Government has set up two have an interest-only mortgage or be initiatives to help homeowners in able to switch to one. You must have financial difficulty, although not all less than £400,000 outstanding on homeowners are eligible. Under your mortgage. You must be able to both schemes you will be referred pay at least 30 per cent of the interest to a money adviser to discuss your due on your mortgage. financial situation. Under HMS you can delay The mortgage rescue scheme payment of some of the interest due (MRS) operates by a shared equity on your mortgage for up to two years, loan (a housing association makes which may give you enough time to a loan which is secured against your sort out your financial difficulties property) or by a mortgage to rent without the risk of losing your home. scheme (a housing association buys The interest that you do not pay your home and rents it back to you, while you are on the scheme is added and you will be given a tenancy with onto your outstanding mortgage. a minimum term of three years). You It’s important to remember that the may still be eligible to apply even if interest you defer is not written off you are in negative equity, but your – you will have to repay it eventually. mortgage must not be worth more Payments can be deferred for a than 120 per cent of the value of maximum of two years, although your your home (see page 12), and your situation will be reviewed after the household income must be under first year. £60,000 per year. One or more of the Most lenders offer HMS or following must also be part of your comparable arrangements. For more household: information visit www.directgov.uk n a dependent child or shelter.org.uk/mortgagearrears n a pregnant woman n someone who is ‘vulnerable’ Private mortgage rescue schemes because they are an older person, You should be aware that there have a disability, are ill, or for some are some private companies other reason. which provide ‘mortgage rescue 11 schemes’, also known as ‘sale and be necessary or if one of you is rent back’ or ‘sale and lease back’. incapable of managing your own These schemes are marketed to affairs, there will be different issues offer an immediate solution to a again. You should get advice from homeowner’s financial problems, one of the advice agencies referred and allow you to remain in your to in the introduction to this guide, home as a tenant. Always check and inform your lender about what is the tenancy agreement you are happening and what your plans are. offered, often it is only for a fixed If you become bankrupt (or where period of six or 12 months (although your home is jointly owned, if one from July 2010 a tenancy must be of the owners becomes bankrupt), for a minimum period of five years). your home is at risk but you may These schemes should be treated not necessarily lose it. You need with great caution as it is often very to discuss your position with your easy to evict you after your home is trustee in bankruptcy. You need to rented back to you. The companies have a place to live, so you may be offering them also usually buy the allowed to make mortgage payments. property at significantly less than the market value. These schemes should Negative equity be registered with the Financial If the money you receive from selling Services Authority (FSA) (see ‘Useful your home is not enough to pay sale organisations’ page 25), which costs (such as the estate agent and requires the companies to comply solicitor fees) and the full amount with certain standards. You should outstanding on your mortgage loan, also be wary of any other ‘quick sell’ then you have ‘negative equity’. You schemes. can only sell with the permission of your mortgage lender. You need to Relationship breakdown, death, show that it is in the interest of the incapacity and bankruptcy lender to allow the sale, which may When a marriage or partnership not be possible if the lender believes breaks down, there can be that the property market will improve. complicated legal problems about If your lender is being unreasonable, the home. If your partner dies, there you may force a sale by going to can be other issues to consider court. about ownership, tax and other If your home is sold with negative people’s rights. And if you or your equity, the lender can still expect you partner face long-term illness, to pay the balance outstanding on particularly if residential care will the loan, and can continue adding 12 interest until it is paid. If you do not may not be willing to house you if pay, the lender could take you to you have made yourself intentionally court or make you bankrupt. If you homeless (see ‘Can I apply as can afford to pay part of the balance homeless?’ on page 18). but not all, the lender may accept a If your lender asks you to hand in payment ‘in full and final settlement’ the keys or move out, this is likely to of the debt. You should get be part of the possession process. It advice from a solicitor, insolvency might be sensible to move out if you practitioner or one of the advice know the home must be sold and the agencies mentioned in this guide, to lender has a specific sale planned. make sure that the agreement is final. You should get advice on what to do. The lender may appear to forget about you for months or years, but Regulation and complaints could then contact you about your If a lender offers mortgages it must debt. If the lender leaves it for twelve be regulated with the Financial years or more, the claim against you Services Authority (FSA), unless may be time barred, as long as you they are buy-to-let mortgages or have not ‘admitted’ the debt. So, if second charge mortgages. The your lender contacts you after many FSA sets standards that the lender years of doing nothing, you should must comply with – this includes get advice before replying to the giving you certain information when letter. You may now owe nothing. you first ask them for a mortgage and how it deals with you if you fall Should I hand in the keys? into mortgage arrears. You can It is usually not advisable to hand check with the FSA if a lender is your keys to the lender. It does not on its register. Most lenders must bring the mortgage to an end, you provide a free complaints service. can still be taken to court for missed If you think the lender has not dealt payments, and the interest continues with your complaint properly, you to run. The mortgage will not come can complain to the Financial to an end until the home is sold and Services Ombudsman (see ‘Useful the loan is repaid. Lenders must organisations’ on page 25). get the market price when they sell, but usually the home will sell more quickly and get a better price if you Your lender is taking you to court do it. The other reason not to hand in the keys is that you will have to find If you have mortgage arrears your another place to live, and the council lender may take you to court. This may 13 be for money you owe, or it may be for can be stopped at any stage. There is possession of your home, or both. still time to negotiate with the lender, The lender can’t force you to leave and still many options to consider. your home except by getting a court Remember that most lenders would order. However, if you move out of prefer your continued custom, as a your home, or if you have a mortgage borrower, than your home. on other land (eg business premises), the lender may take possession What the lender must do without a court order, and may Both you and your lender are change the locks – although lenders expected to take reasonable steps to very rarely take this course. avoid the case going to court. These steps are known as the ‘pre-action Court forms protocol’. Going to court should be You will receive a ‘claim form’ from last resort. the court, usually the local county The lender should have discussed court, which will set out the claim and your financial problems with you and what the lender wants. If the lender considered any proposals that you wants possession of your home, made to deal with your arrears. The there will be a date, time and place for lender should consider not going the court hearing. to court if you have made a claim The court will also send you a reply for support for mortgage interest form (a ‘defence form’), which you (see ‘Claiming welfare benefits’ on should return to the court within 14 page 10) or for a mortgage payment days. This is for you to tell the court protection plan (see ‘Claiming on about your financial situation, any insurance policies’ on page 8), and offers to repay the arrears, any other you will be able to meet any shortfall information that you think the judge on your mortgage instalments if the needs to know (for example, why claims are paid, or if you are taking you missed payments). Whether you active steps to sell your property. return the defence form or not, it is The lender is required to give the very important that you attend the court a checklist showing that it has hearing. If you need more time, you followed the pre-action protocol. can ask the court to adjourn the If the lender has not followed the hearing, this means postponing the pre-action protocol, the court can hearing to a later date. The court postpone the hearing. will need a good reason to agree to postpone the hearing. Can I get legal aid? The claim form does not mean that If you decide to see a solicitor, you you will lose your home. The process may be entitled to public funding, 14 often referred to as legal help and hearing. If possible it is much better legal aid. If you are eligible for legal to get advice before this stage. help you can get free legal advice. If you are also eligible for legal aid, the Do I have a defence? Government pays your legal costs, Normally your chances of keeping although you may have to make a your home depend upon your ability contribution. In some circumstances, to pay your mortgage and any it is possible that you will have to pay arrears over a reasonable period but your costs from the sale proceeds in some circumstances, you may when you sell your home, although have a good reason not to make this may be in many years’ time. payments under a mortgage, and However, many solicitors do not this reason may be a legal defence if offer legal help or aid. You can get a court case is brought against you. details of solicitors who do from It is not possible to list all possible Community Legal Advice (see ‘Useful defences, but here are a few organisations’ on page 25). There is a examples: ‘means test’. You will qualify for legal n Error by the lender. This is rare, help if you are on certain benefits or but does happen occasionally. you have a low income. To qualify for Always check your records legal aid you must also have a good carefully, as it might be your error, chance of success in court, your or a cheque may have been lost in solicitor will be able to advise you the post. about this. n Bank charges can sometimes be If you do not qualify for legal aid, challenged. More information is a solicitor may be willing to do a first available from the Office of Fair interview with you for a fixed fee, Trading (see page 26). but following that, the fees can get n If you have a consumer credit loan, expensive. not borrowed for the purchase of your home or other land, you Help at the court may be able to claim that it is an There is a duty advice scheme in extortionate credit bargain or that many county courts. A duty solicitor certain legal formalities have been or adviser can give you last minute overlooked. The loan may be help at the court by giving you advice, reduced as a result. representing you before the judge, n Duress (you were forced to sign and negotiating with your lender. This a mortgage) or undue influence service is free regardless of your (you signed a mortgage because income, but you will not necessarily a family member or a professional get any further help after the court adviser talked you into it though 15 it was against your interests) to justify what you say, and have with may invalidate your mortgage, you any documents that you think especially if you have agreed to a the judge might want to see (eg pay mortgage on your home so that slips, bank statements, evidence someone else can get money, eg of any lump sum payments due to for a business. you which you could use to pay the arrears, evidence of a job offer). It is Except in straightforward cases, get not necessary for you to use formal legal advice if you think you may words, but it is usual to address the have a defence. If you fail to make judge as ‘Sir’ or ‘Madam’. The judge payments, your home may be at risk, may ask you questions. but if you do make payments, you The judge will then decide what may undermine your defence. will happen next. What will happen at court? The possible outcomes When you arrive at court, you need to There is a range of decisons the give your name to the court staff so judge can make, of which the most that they will tell you when the judge likely are: is ready. There are often a lot of cases n Dismissal – where the arrears listed at the same time, so you may have been paid. This will be the have to wait. When the judge is ready, end of the case. you will be shown into a room. This n Procedural adjournment – may be a court room, but often it is a where for example the lender has smaller room or office. Your hearing failed to follow the pre-action will be private; and there will usually protocol (see ‘What the lender only be you, your solicitor or adviser must do’ on page 14), or where you (if you have one), the lender’s solicitor need time to get legal advice. Be or representative, and the judge. If ready to explain why you have not you want a friend to be present to yet been to get advice, and if you help you, the judge can allow this, have an appointment, when it is. but usually you will be expected to n Adjournment – to give you time to speak for yourself unless you have a pay the arrears over a reasonable solicitor. If there is a duty solicitor or period. adviser, s/he may speak for you. n Case management directions The lender’s solicitor or – if you have a defence (see ‘Do I representative will speak first, and have a defence?’ on page 15). The will explain what the lender wants. ‘directions’ are instructions from Then it is your turn. You should expect the judge to tell you and the lender 16 what you must do to get the case household bills. It will help if you ready for a trial. have a list of your income, outgoings, n Suspended or postponed debts and savings – you will find a possession order – this is a budgeting form to help you with this possession order but if you keep on page 22. Be prepared to explain to the order, usually by making why your circumstances have payments required by the order, improved, or are likely to improve, then you will not have to leave and the changes that you have made your home. If you break the order, or can make to ensure that payments then you will be at risk of eviction. are made in the future. You may still have time to apply to the court to suspend any eviction. Can I do anything after a n Outright possession order – this possession order has been made? will give you a date by which you n You can appeal, if the judge has must leave your home. got the law wrong. You should get n A money judgment – the lender legal advice before appealing, as does not need a money judgment it might not be the best course of when a possession order has action. been made, and can take what n You can apply for the possession is due from the proceeds of the order to be set aside, for example sale. A judgment may be made if you failed to attend the hearing, if the arrears have been reduced you had a good reason for failing to a small amount, or where the to attend, and you have good amount of the arrears has been reasons why a possession order disputed. should not have been made. n You can apply for the possession Generally, the judge will want to order to be varied or suspended, adjourn or make a suspended/ if there has been a change in your postponed possession order, circumstances that justify the provided that you can show that change. For example, you may you will pay the arrears within a have cleared a large part of the reasonable period, which may be arrears, or got a new job so you over several months or even years. can afford to clear the arrears. You will need to show not only that n You can apply for a stay of the you are willing to pay, but also that warrant for eviction. This you will be able to pay. Remember prevents the bailiffs evicting you that you need to pay the future for a period while you appeal, mortgage payments as well, and apply to set aside, vary or meet other debts and ordinary suspend the possession order. 17 All of these applications can be Sometimes the lender makes made over the counter at the mistakes during a court case. If court. You will have to pay a fee this happens, and especially if the unless you are exempt because case is dismissed or adjourned as a you have a low income. You can get result, you can ask the judge to order advice from a solicitor or one of the the lender not to charge you for the advice agencies mentioned in the wasted costs. But if the lender brings introduction to this guide. a case against you and you then pay the arrears, you must pay the costs Bailiffs’ warrants and bailiffs’ even if you think that the court case notices was unnecessary. If an outright possession order is made against you, or if you fail to Sale by the lender after meet the conditions set out in a repossession suspended possession order, the Usually there is nothing you can do lender can ask the court bailiffs to to stop the lender selling your home evict you. The bailiffs will send you a at this stage, but if you can afford letter about 14 days before they are to repay the whole loan including all coming. It is best to leave with your arrears and costs, then the lender belongings. If you fail to leave, the may agree to allow you to have your bailiffs can evict you. home back. If the lender intends to sell your home for less than it is Costs worth, you may be able to get a court Most mortgages allow the lender to order to stop this happening, but you charge you for any of the costs of should get legal advice first. taking any action after you fall into After your home is sold, the lender arrears with your mortgage. These uses the money received to pay costs will be added to the amount its sale costs and the outstanding outstanding on your mortgage. If the mortgage. If there is any money left, lender takes you to court, the costs this should be paid to you. If there is can run into hundreds of pounds. If not enough money to pay everything, you fight the case, the costs may be then you can be made to pay the a lot more. This is one reason that balance. See ‘Negative equity’ on it is essential to get legal advice if page 12. you are fighting a mortgage case. If you take steps that later prove to be Can I apply as homeless? wrong, you could add to your debts You can ask your local council’s and to your problems. housing department for help if you 18 have nowhere to stay or are likely to Arranging a mortgage lose your home in the next 28 days. Mortgages can be arranged at The council is legally required to give high street branches of banks and you advice about finding a place to building societies, through brokers live. Depending on your situation, and agencies, and on the internet. you may also be entitled to It is worth comparing the different accommodation. You can get more mortgages available. You should information from an advice centre, consider: or by reading the Shelter guide n Interest rates, which can be fixed, Homeless? Read this, or by visiting variable, tracker or discounted. shelter.org.uk/getadvice n How easy it is to transfer to another mortgage product with Tenants of borrowers the same lender, or change lender, When a borrower has rented out and what charges there might be. their home and fallen into arrears n Can you increase payments, or on the mortgage, the tenant will make lump sum payments, if your be faced with threat of eviction if position improves? or decrease the lender takes the borrower to them if problems arise? court. Often the tenant will only find n Your own research, eg ask at out about the court hearing at a banks or building societies, check late date. A mortgage lender who financial pages in newspapers has issued a claim for possession and look on the internet. against a borrower must serve a n most brokers and agencies will notice on the property addressed to not charge you an arrangement ‘the occupiers’. Usually if the court fee. They must provide you with makes an outright possession order an initial disclosure document against the borrower, this will apply providing details of the service to the tenant as well. But there are they provide and any fees they significant exceptions, if you are a do charge. tenant in this situation get advice as soon as possible. A capital repayment mortgage is a loan for a fixed period of years, often 25 years or ending at your Appendix 1 expected retirement date. You must Types of mortgage pay a certain amount of money each month. At first, most of the money The following gives a brief overview paid is used to pay the interest on the of the different types of mortgage loan, and a small amount is used to available, and related information. pay off part of the loan. As the loan 19 is gradually reduced, the amount of The interest rates on capital your payment used to pay interest repayment and interest-only gets smaller, and so the loan is paid mortgages can be fixed, variable, off at an increasing rate. At the end tracker or discounted. A fixed rate of the loan period, provided you have lasts for a period of years and after made all of the payments, the loan that you may be able to get another will have been paid in full. fixed rate. Variable interest will rise With an interest-only mortgage, or fall as the lender’s interest rates you pay interest on the loan in change. A tracker rate goes up and monthly instalments but you do not down according to the external rate pay off any of the capital. Generally to which it is linked, such as the the monthly repayments are lower Bank of England rate. A discounted than with repayment mortgages. rate is a variable rate but discounted Often, you make payments into a (or reduced) for a fixed period. A separate investment scheme, for flexible mortgage allows you to example, an endowment policy, vary your monthly payments, within which is designed to build up enough limits, or make lump sum payments. money to pay off the capital at the Equity release (sometimes end of the term. known as capital release, home An investment scheme can take reversion or lifetime mortgage) is various forms. At the end of the term, a range of products that enable a the policy matures and you get a person with spare equity in their lump sum, which should be enough home to borrow money. They are to repay the loan. However, since the often intended for older people. premiums are invested and subject Typically, after the loan is made, to changes in the market, many either low or no payments are due people who took out endowment until after the borrower’s death policies found the lump sum was when the home must be sold and significantly less than the amount of the loan repaid in full. Some of these the original loan, in which case they agreements are mortgages, but still owed the lender the outstanding some are a form of leasing. While balance. equity release may be suitable for There are interest-only mortgages some people, the cost of borrowing that have no investment scheme, can be very high indeed, and you and the borrower gambles on rising should get advice before taking out property prices to be able to pay off this kind of loan. the original loan. If prices fall, you Shared ownership mortgages risk having a large debt and being are linked to a shared ownership repossessed by the lender. 20 agreement. There are various loan. Interest rates and charges kinds of agreement, but typically are often much higher than other the home is owned in part by a mortgages. Some lenders are housing association and partly happy to lend to high-risk borrowers, by the homeowner, who pays the knowing that they can sell your home housing association rent for its share to repay the loan. Always consider and makes mortgage payments other options like using savings for the rest. If the homeowner’s or increasing your main mortgage. circumstances improve, s/he can You should only take a loan where buy a greater share of the home from you know that you can afford the the housing association (‘staircasing repayments, and make sure you up’). Shared ownership mortgages understand interest rates and other are usually capital repayment charges. mortgages. Remortgaging refers to ending Islamic mortgages are products your current mortgage agreement designed to comply with Shari’ah and entering into a new one with (Islamic religious law), and do not a different lender. You may want have interest payments. The most to do this to obtain lower monthly common forms are Murabaha and payments or to enter a fixed-rate Ijara. ljara is a leasing agreement agreement. You take out a new where you arrange for the bank to mortgage which pays off the old buy a home, and you then make mortgage. The term remortgaging payments to the bank as rent and does not apply to the situation instalments of the purchase price. where you switch to a new mortgage When all instalments have been product with the same lender. paid, the home is transferred to you. Buy-to-let mortgages are loans Murabaha is a form of mortgage granted to enable the borrower to transaction where the bank buys the buy a property to rent out rather than home and sells it to you at a higher live in. price to include the bank’s profit, Business loans and overdrafts again to be paid by instalments. The are often linked with a mortgage on bank retains a mortgage until all a home. Remember your home is at instalments have been paid. risk even if you are not the borrower, A second mortgage or secured and get advice before agreeing to loan is a mortgage for something any mortgage. other than home purchase. You Family mortgage. A loan from usually make a monthly payment, a member of your family to buy a which pays interest and part of the property can be in the form of a 21 mortgage. You should get advice offered and what it covers. Your from a solicitor or conveyancer to set plan is unlikely to cover existing up the mortgage. medical conditions or voluntary Sub-prime mortgages are a redundancy, and may only pay type of mortgage available to people your monthly mortgage payments with uncertain incomes or poor for a limited period. credit histories who find it difficult n Mortgage indemnity insurance to get a mortgage from banks or is to protect the lender and not building societies. Generally the you, in case you fail to make the interest rates are higher and the payments due and there is a lender is more likely to take action shortfall after your lender has sold to evict you if you have mortgage your property. If the insurer pays arrears. out, the insurer can then make Insurance policies – there are a you pay them the shortfall. You number of policies to consider when may have to pay for a policy if your you take out a mortgage: mortgage is for more than 75 per n You must have house insurance. cent of the value of your home. If you own a flat, this is probably arranged by the freeholder, and if you own a house, it is arranged by you. Some lenders include Appendix 2 insurance as part of the mortgage Budgeting forms package, and some lenders will sell you their own insurance if you The following two forms can help want it. you to understand how much money n An endowment mortgage usually you have to pay your bills each includes life assurance, but if you month. If you are going to see your have a repayment or interest-only lender you may find it be helpful mortgage you may need to pay if you fill out these forms and take for life assurance. At its cheapest, them with you. An adviser at one of this will pay off the loan if you the organisations referred to in the should die, but a more expensive introduction to this guide may be policy can be an investment. able to help you. n A payment protection plan is There is also a very helpful an insurance policy to meet online budget calculator on the your mortgage payments if you Financial Services Authority’s fall ill or lose your job. Check Moneymadeclear website at carefully what you are being shltr.org.uk/57 22 Budget forms Income per month £ Wages Child benefit Other benefits Child maintenance Student loans Other Total 23 Outgoings per month £ Mortgage payments Electricity/gas Water rates Council Tax Insurance TV licence/Satellite etc Phone/Internet Mobile phone Credit card Student and other loans Travel to work Car Child Child maintenance payments Food Toiletries Clothes Cigarettes Alcohol Going out Holidays Other Total 24 Appendix 3 Community Legal Advice Useful organisations To find a solicitor, use the CLA Directory at: To contact Shelter www.unitylegaladvice.org.uk We run a dedicated telephone advice To get free initial advice, call the service for homeowners who need helpline on 0845 345 4 345 expert help with mortgage arrears or are facing repossession. Call 0300 Council of Mortgage Lenders 3300 515 for impartial, free and Bush House, North West Wing, confidential advice. Aldwych, London WC2B 4PJ 0845 373 6771 You can also call our free housing www.cml.org.uk advice helpline on 0808 800 4444. (The helpline is open from 8am to Directgov 8pm on Mondays to Fridays and www.direct.gov.uk from 8am to 5pm on weekends. Calls are free from UK landlines Financial Services Authority and main mobile networks.) We 020 7066 1000 can provide minicom or interpreting Consumer Helpline 0300 500 5000 services if required. www.fsa.gov.uk Visit our website for more information The Financial Services Authority about your housing rights and details provides very useful information for of our local advice centres: the general public about mortgages shelter.org.uk/getadvice on its moneymadeclear website at www.moneymadeclear.fsa.gov.uk Other organisations that may be able to help you: Housing Rights Service (Northern Ireland) Advice UK 4th Floor, Middleton Buildings, 6th Floor, 63 St Mary Axe, 10–12 High Street, Belfast BT1 2BA London EC3A 8AA 028 9024 5640 020 7469 5700 www.housingrights.org.uk firstname.lastname@example.org www.adviceuk.org.uk HM Revenue & Customs There are local advice offices in Citizens Advice many towns, and advice available To find details of your local bureau regionally by post and telephone. For go to www.citizensadvice.org.uk more details visit www.hmrc.gov.uk 25 Jobcentre Plus The Government agency to be contacted to make a claim for benefits. 0800 0 55 66 88 www. jobcentreplus.gov.uk Law Centres Federation 020 7387 8570 www.lawcentres.org.uk National Debtline Free independent advice on debt problems. Tricorn House, 51-53 Hagley Road, Edgbaston, Birmingham B16 8TP 0808 800 4000 www.nationaldebtline.co.uk Office of Fair Trading Consumer advice and information 08454 04 05 06 www.oft.gov.uk/Consumer/Money Shelter Cymru 25 Walter Road, Swansea SA1 5NN 01792 469400 sheltercymru.org.uk Shelter Scotland Scotiabank House, 6 South Charlotte Street, Edinburgh EH2 4AW 0344 515 2444 shelter.org.uk 26 Until there’s a home for everyone SH063 February 2010. Cover photo: Sophie Laslett. We are one of the richest countries in the world, and yet millions of people in Britain wake up every day in housing that is run-down, overcrowded or dangerous. Many others have lost their homes altogether. Bad housing robs us of security, health, and a fair chance in life. Shelter helps more than 170,000 people a year fight for their rights, get back on their feet, and find and keep a home. We also tackle the root causes of Britain’s housing crisis by campaigning for new laws, policies and solutions. Our website gets more than 100,000 visits a month; visit shelter.org.uk to join our campaign, find housing advice, or make a donation. We need your help to continue our work. Please support us. 88 Old Street London EC1V 9HU Tel: 0300 330 1234 shelter.org.uk Registered charity in England and Wales (263710) and in Scotland (SC002327).
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