Mortgage Arrears by mikeholy


									A       guide

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

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.


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.

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

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

     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

 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.

 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

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
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

   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
n   a dependent child                         or
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

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

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

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,

 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

     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

    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.

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

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.                  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

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.

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

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 

Budget forms

   Income per month            £


   Child benefit

   Other benefits

   Child maintenance

   Student loans



     Outgoings per month                  £

     Mortgage payments
     Water rates
     Council Tax
     TV licence/Satellite etc
     Mobile phone
     Credit card
     Student and other loans
     Travel to work
     Child maintenance payments
     Going out

Appendix 3                               Community Legal Advice
Useful organisations                     To find a solicitor, use the CLA
                                         Directory at:
To contact Shelter             
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
advice helpline on 0808 800 4444.
(The helpline is open from 8am to        Directgov
8pm on Mondays to Fridays and  
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.          

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                 on its moneymadeclear website at
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                                        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          more details visit

Jobcentre Plus
The Government agency to be
contacted to make a claim for
0800 0 55 66 88

Law Centres Federation
020 7387 8570

National Debtline
Free independent advice on debt
Tricorn House, 51-53 Hagley Road,
Edgbaston, Birmingham B16 8TP
0808 800 4000

Office of Fair Trading
Consumer advice and information
08454 04 05 06

Shelter Cymru
25 Walter Road, Swansea SA1 5NN
01792 469400

Shelter Scotland
Scotiabank House, 6 South Charlotte
Street, Edinburgh EH2 4AW
0344 515 2444

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 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

Tel: 0300 330 1234

Registered charity in England and Wales (263710)
and in Scotland (SC002327).

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