Can I sell my house with mortgage arrears?

When you take out a mortgage with a lender, you make an agreement to make regular mortgage payments every month. This includes repayments towards your original loan and accumulated interest. Failure to make monthly mortgage payments is known as mortgage arrears.

While mortgage arrears are not an ideal situation to find oneself in, missing a few mortgage payments is not the end of the world - but you need to act fast and seek help.

Sometimes however, homeowners must come to the foregone conclusion that they are unable to pay back their missed payments. And so the question remains: can I sell my house?

Can I sell my house with mortgage arrears?

The answer is yes, you can sell your house with missed mortgage payments - but only as a last resort. We advise contacting your mortgage lender to find an alternative payment plan first. In an ideal world, you'll find a way to keep your house and continue paying your outstanding mortgage.

Mortgage lenders usually allow borrowers a grace period of 10-15 days after their first missed payment. However, failure pay during this grace period will result in a late fee - usually 5 to 10% of the monthly repayment.

This might not seem like much, but missed payments and late fees can quickly add up. Indeed, if you fail to make good on these payments, your lender will eventually seek court action to repossess the property. The resulting legal fees could see you plunge to even deeper debt.

As such, it's vital that you contact your lender immediately to either work out a new payment plan, or to resume your regular repayments.

Is it a good idea to sell my house with mortgage arrears?

Selling your house with arrears is a sensible option compared to the alternatives of waiting to be evicted or voluntary repossession (handing the keys back to the lender).

Both alternatives result in your lender repossessing the house and selling it at auction. And whatever they make from the auction will almost certainly not equal your outstanding debt and interest. As a result, you'll still be indebted to your lender - which is known as shortfall.

Why selling your house might help

By selling your house yourself, you have a higher chance of making greater returns and paying off your debt and accumulated mortgage interest. But it's not as straightforward as simply declaring your home is for sale.

Whichever route you proceed with, you might still fall short of covering the full amount. That’s why before you begin the process of selling, you should try and work out an alternative method of payment to preserve your mortgage agreement.

If you decide that selling your home is the best option, how do you go about this?

1. First you need to work out whether you'll actually make the mortgage funds back.

To do this, you need an up-to-date valuation of your property.

You can get a quick valuation using GetAgent's exclusive Online Valuation Tool. It gives you a preliminary idea of how much you stand to make:

Or you could request a free valuation from a top-performing estate agent. In some ways, this is much quicker - you'll need an agent valuation anyway if you do end up selling. Plus, their valuations are much more accurate than online tools.

At GetAgent, we compare top-performing local estate agents using accurate data from the Land Registry and property portals like Rightmove and Zoopla.

2. If you stand to clear a lump sum (or all) of your mortgage debt, instruct the best agent for you.

If you're projected to clear a good chunk of your mortgage debt, then it's in your best interests to sell your home with a top-performing agent.

Our Agent Comparison Tool ranks agents according to:

• Most likely to sell at asking price
• Most experienced selling homes in your area
• Fastest to sell properties like yours

A high-performing agent can make a colossal difference to your home sale.

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How to avoid selling your house

No one wants to lose their home due to mortgage arrears, so before making the decision to sell, you should explore every possible avenue of repayment.

Get in touch with your mortgage lender

Contacting your lender is the first and most important step. Mortgage providers must treat existing customers with fairness. In fact, they're regulated by the Financial Conduct Authority's (FCA) Mortgage Conduct of Business rules to facilitate the fair treatment of borrowers.

This means your mortgage provider must try and work out an alternative repayment plan while you build back up toward regular monthly payments. Repossession is usually the last thing a lender wants.

Ways to pay your arrears

There are several settlements you can reach with your lender to pay off your arrears:

• Spread missed payment across several months: You could reach an agreement with your lender whereby missed payments are spread out across several months. So if you miss a monthly instalment of £800, you can spread this payment across four months - so for the next four months you'll be paying £1000 instead.
• Capitalise your arrears: If you're not in negative equity, and your home is worth more than the outstanding amount of your mortgage, you could negotiate for the arrears to be added onto to the total amount you owe. That way, you can pay back your arrears over the rest of your mortgage's lifespan.
• Reduce your monthly repayments: Your lender may be open to renegotiating the terms and conditions of your loan. You could look to pay your loan back over a longer period of time by changing the fixed term of your mortgage. Or you could try to take a repayment holiday.

Contact StepChange for free advice

StepChange is the UK's pre-eminent debt counselling charity. If you're looking for free mortgage advice, or even need someone to negotiate with your lender on your behalf, StepChange can help.

One of the first actions StepChange takes is determining your financial situation. They'll ask you how much debt is owed, the name of your lender, as well as personal questions regarding your annual salary and your monthly budget.

Once they've determined your financial situation, they will work out how much you can afford to pay your lender a month, and make a recommendation based on this.

If you're looking for more free advice, Citizens Advice Bureau is another independent organisation that caters to people with debt and housing problems.

Debt management plan

If you're struggling to pay your mortgage due to other debts, StepChange can negotiate a debt management plan on your behalf. A debt management plan alleviates pressure from your other debts, allowing you to pay off your mortgage once more. Your interest and charges are frozen, while your disposable income is shared among creditors proportionally.

Your mortgage arrears cannot be included in a debt management plan because mortgages count as a priority debt - a debt that takes precedence over others. A debt management plan is reviewed every year until you're in a better state to pay as normal.

How many months mortgage arrears before repossession?

For most lenders, property repossession is a last solution - they want to make a profit from your loan for as long as possible. As a result, most lenders won't begin repossessing your home until you've missed mortgage payments for at least three months.

Can I get a mortgage with a default?

Yes, you can get a mortgage or remortgage with a previously defaulted loan - but it's much harder. High street lenders often refuse borrowers with defaults because they appear less trustworthy and reliable, preferring borrowers who've instead maintained clean credit reports.

So how do prospective mortgage providers decide whether to lend to borrowers with defaults? They look at:

• How long ago the default occurred
• What type of loan was defaulted
• The total value of the defaulted loan
• Your financial behaviour since defaulting on the loan
• Whether you've managed to keep up on repayments

Can you go to prison for not paying your mortgage?

No, you can’t go to prison for mortgage debt. In the Victorian era, jail time was deemed a suitable punishment for those with household debt. You'll be glad to know this is no longer the case.

You can only go to prison for not paying bills like Council Tax - and even then, this is only in the very worst case scenario.

You can't go to prison for not paying:

• Mortgage arrears
• Rent arrears
• Utility arrears
• Loans
• Overdrafts
• Credit cards
• Hire purchase debts

Selling your home is the best last option

No one wants to find themselves in mortgage arrears, but it's important to remember that you always have options, even in a difficult situation like this.

Selling your home with mortgage arrears is a choice - in fact it's one of the best last choices you can make. But if you want to keep your home and continue paying your mortgage, you should immediately seek help from a charity like StepChange and talk to your lender.

If you do intend to sell, it's imperative that you find the best estate agent on the market. Always use a free comparison tool like GetAgent's to make sure you're selling with the best.