Cannot Pay Your Mortgage? 7 Steps to Avoid Repossession in the UK

Mortgage arrears feel different from every other debt, because the security is the roof over your head.

That fear is reasonable. It is also the reason so many people go quiet on their lender at exactly the point when talking is worth the most.

Here is the part that rarely gets explained properly. Your lender is not free to move straight to court. FCA rules require it to treat you fairly if you are in payment difficulty and to consider a specific list of options before taking possession. The court protocol goes further and says a possession claim should be a last resort.

None of that makes arrears comfortable. It does mean there is usually a lot more room than the first letter suggests. This guide covers England and Wales, and general UK principles. It is general information and education, not personal financial advice or regulated debt advice.

Useful next steps before you read on

Before working through the seven steps, start here:

• If a Charging Order has been mentioned on any other debt secured against your home, read What Is a Charging Order and How Do You Stop It?
• If a CCJ has been mentioned or issued, read What Is a County Court Judgment (CCJ) and Can You Stop It?
• If you are looking at whether a reduced payment is realistic while you get the position stable, read UK Token Payments: Reduce Debt Repayments When You Cannot Afford to Pay.
• Before making any offer to the lender, use the Budget Planner to set out your figures. A lender or a judge will ask.

Any conversation with a mortgage lender goes better with figures on the page and the rules in front of you.

What counts as mortgage arrears, and why they are a priority debt

Arrears simply means you owe payments you have not made. One missed payment puts you in arrears. Lenders and industry data usually start reporting arrears seriously at 2.5% or more of the outstanding balance, which for many households is roughly three months of payments.

Mortgage arrears sit in the priority debt category, along with rent, council tax, energy and court fines. Priority does not mean the debt is bigger or that the lender is more aggressive. It means the consequence of not paying is worse than a credit card, because the lender can ultimately ask a court for possession of your home.

That is why the order you pay things in matters more than the amount. A credit card can wait. A secured loan cannot.

It is worth checking whether any other loan is secured on your home as well. National Debtline sets out that second charges, further advances and some consolidation loans are secured on the property, and that if they are secured they must be treated as priority debts, because those lenders can also ask the court for possession.

Step 1: Contact your lender before it contacts you

This is the step people skip, and it is the one that changes the most.

FCA rules in MCOB 13.3 require a firm to deal fairly with a customer who has a payment shortfall. That includes making reasonable efforts to reach an agreement with you over paying the shortfall, having regard to the desirability of agreeing an alternative to taking possession, liaising with a third party source of help if you have asked it to, and allowing a reasonable time for the shortfall to be repaid.

The rules also require the lender to give you information about money guidance and debt help. That signposting requirement exists because the FCA expects lenders to route you to help rather than pressure.

In practice this means early contact is not weakness. It starts the clock on the lender's obligations and creates a record that you engaged.

Say three things when you contact them: what has changed, what you can pay now, and when you expect the position to improve. Then follow up in writing so there is a paper trail.

Step 2: Know the options your lender must consider

This is the part of the conversation where knowing the rules is worth real money.

MCOB 13.3.4A R requires your lender, before taking action on a payment shortfall, to consider whether it is appropriate to do any of the following, either alone or in combination. This is not a courtesy list. It is a rule.

In plain English, before your lender starts pushing towards repossession, they must have properly considered these options:

1. Extend the term. Spread the remaining balance over more years to reduce the monthly payment.
2. Change the mortgage type. Switch to a different rate or product where suitable.
3. Defer interest. Postpone payment of interest due on the mortgage for a period.
4. Capitalise the shortfall. Treat the payment shortfall as if it was part of the original amount, so the arrears sit inside the loan and get repaid alongside it.
5. Use a Government forbearance scheme. Any scheme the firm has chosen to participate in.

The same rules require the firm to give you adequate information to understand the implications of any proposed arrangement, including the effect on your mortgage balance and, where relevant, the effect on your credit file.

There are also limits designed to protect you. The firm must not automatically capitalise a payment shortfall where the impact would be material, and the rules set out what material means: an increase of more than £50 in total interest over the mortgage term, or an increase of more than £1 in the monthly payment.

Ask for each option by name. "Can you extend my term" gets a different answer from "is there anything you can do".

Step 3: Understand the rules before a court claim can start

Court is not the first move, and the protocol that governs it is public.

The Pre-Action Protocol for Possession Claims based on Mortgage Arrears applies to first charge mortgages regulated by the FCA, to second charge and other secured loans regulated under the Consumer Credit Act, and to unregulated residential mortgages. It does not apply to buy-to-let mortgages, so a landlord in arrears cannot rely on it.

The protocol requires the lender to:

• provide you with the total amount of the arrears, the outstanding balance, and details of the interest and charges being applied;
• tell you to make contact with your local authority housing department and refer you to appropriate sources of independent help;
• discuss the cause of the arrears, your financial circumstances and your proposals for payment;
• consider any reasonable request to change the date or method of payment, and give written reasons if it refuses;
• respond promptly to your proposals, and give reasons in writing within 10 business days if it does not agree;
• give at least 15 business days' written notice of its intention to start a claim where an arrangement has broken down.

The protocol also states that the lender must not consider starting a possession claim in certain situations, including where you have made a claim for Support for Mortgage Interest or Universal Credit that may help, where you are waiting on insurance or local authority support, or where you need a reasonable period to get free help with your debts. Where the property is being actively marketed, the lender must consider postponing court action, and if it decides not to postpone it must give you its reasons at least five business days before starting proceedings.

Step 4: Ask about extending the term or switching to interest only

These two options do the most heavy lifting because they cut the monthly payment without writing anything off.

Extending the term spreads the remaining balance over more years, which reduces each payment. The trade off is more interest over the life of the loan, and lenders will look at your age and the end date.

Switching to interest only means you pay only the interest for a period, so nothing comes off the capital. It can be a sensible bridge through a temporary income drop. It is not a long term answer, because the balance is still waiting for you at the end.

National Debtline notes that if your home is worth more than your total mortgage, the case of Cheltenham and Gloucester v Norgan supports the idea that a reasonable time to repay arrears can be the remaining lifetime of the mortgage rather than a short window. Many lenders open by asking for arrears to be cleared over 12 to 24 months. If that is not affordable, ask for longer and say why.

Get any agreement in writing, and ask specifically how it will be reported to the credit reference agencies.

Step 5: Check whether Support for Mortgage Interest applies to you

Support for Mortgage Interest, usually shortened to SMI, is help with the interest on your mortgage if you are on certain qualifying benefits.

In plain English, three things about SMI are commonly misunderstood and it is worth getting them straight before you apply:

1. It is a loan, not a benefit. It is repayable with interest when the property is sold or ownership is transferred. You can make voluntary repayments earlier if you want to.
2. It only covers interest, up to a capital limit. GOV.UK states you can get help with interest on up to £200,000 of your mortgage, reduced to £100,000 if you are receiving Pension Credit or you started claiming a qualifying benefit before 2009 and are below State Pension age. The interest rate used is currently 3.66%.
3. Waiting periods vary by benefit. Payments can start straight away on Pension Credit, after three months in a row of Universal Credit, or after 39 weeks on income based Employment and Support Allowance.

Payments are normally made directly to your lender. If you have applied for SMI, tell your lender in writing. The pre-action protocol treats a pending claim for Support for Mortgage Interest as a reason not to consider starting a possession claim.

Step 6: What happens if your lender does go to court

If a claim is issued, you will usually receive a claim form, particulars of claim and a defence form. National Debtline explains that the papers are normally the N5 claim form, the N120 particulars of claim and the N11M defence form, that you usually get at least four weeks' notice of the hearing, and that the defence form should be returned within 14 days.

Fill in the defence form even if you are late doing it. It is your chance to set out your budget, dispute the lender's figures if they are wrong, explain how the arrears happened, say whether you want time to sell, and tell the court if you believe the lender did not follow the pre-action protocol.

Then go to the hearing. Shelter explains that at a mortgage hearing a judge can:

• adjourn the case, usually for around 28 days, to allow something to be resolved;
• make a suspended possession order, which means you can stay as long as you keep to a repayment plan, normally clearing the arrears by the end of the mortgage term;
• make an outright possession order, which is more likely if you do not attend or you cannot clear the arrears by the end of the term, with the possession date usually set around 28 days after the hearing.

Two details matter enormously. An outright order does not mean the locks change that day: the lender still has to apply to the court for a warrant of possession and have bailiffs carry out the eviction. With a suspended order, missing a payment can allow the lender to apply for a warrant, so if something goes wrong you need to act quickly rather than hope. Shelter also notes that court fees and the lender's legal costs are usually added to your mortgage debt, so the cost of court is not neutral.

Step 7: If selling is the better outcome, take control of it

Sometimes the arithmetic does not work, and the honest answer is that the property has to go. Selling on your own terms is almost always better than a forced sale.

The pre-action protocol supports this. Where the property is being actively marketed, the lender must consider postponing court action, and MCOB requires a firm to allow you to remain in possession for a reasonable period to effect a sale where you can demonstrate that you are actively marketing the property.

If the sale does not clear the mortgage, you are left with a shortfall. National Debtline explains that where the lender intends to recover a mortgage shortfall, MCOB requires it to tell you within six years of the sale date, and that under the Limitation Act 1980 the time limits are 12 years for the capital and six years for interest on the shortfall.

Be careful with quick sale companies and sale and rent back arrangements. National Debtline warns that quick sale companies usually pay less than market value and that sale and rent back is risky. If a Charging Order has already been made against the property for a separate debt, read What Is a Charging Order and How Do You Stop It? before you sell, because that changes what happens to the sale proceeds.

Mistakes that make mortgage arrears worse

• Going silent. Every rule that protects you assumes some engagement. Silence removes your best arguments.
• Paying nothing while you wait for a decision. Pay what you can, even if it is not the full amount. It shows good faith and it reduces the arrears figure the court sees.
• Putting credit cards ahead of the mortgage. The unsecured creditor is louder. The secured creditor is the one that can ask for your home.
• Taking a new loan to clear arrears. National Debtline warns against this specifically. It usually converts a payment problem into a bigger payment problem.
• Missing the defence form deadline. Fourteen days goes quickly, and the form is your route to putting your side to the court.
• Not attending the hearing. An outright possession order is more likely if you do not turn up.
• Assuming a suspended order is the end of it. Miss one payment and the lender can apply for a warrant.
• Agreeing to a payment you cannot sustain. A broken arrangement is worse than an honest lower offer.
• Relying on the protocol as a buy-to-let landlord. It does not apply to buy-to-let mortgages.

Where to get the right kind of help

Citizens Advice, Shelter and the Housing Loss Prevention Advice Service all cover this ground, and legal representation is available at court once court action starts. Your lender is required by FCA rules to point you towards these services, so asking for that signposting is entirely normal.

The Real Debt Guy sits alongside that, not instead of it. It shares general debt and money education, helps you understand what your paperwork is actually saying, and supports you in preparing and writing letters in your own name so you can deal with your lender yourself. The Real Debt Guy is not FCA regulated and does not provide regulated debt advice, debt counselling or debt adjusting.

For a mortgage in arrears, the practical split usually looks like this:

• Wider help routes for the general consumer picture, benefit checks, and any regulated debt support you need.
• The Housing Loss Prevention Advice Service from the moment court papers arrive, for legal help and representation at the hearing.
• A solicitor with housing or possession experience if there is a dispute about the figures, the process or the pre-action protocol.
• our support options to get organised, understand the letters and prepare what you want to say to the lender in your own name.

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