Selling the property or handing back the keys
This information applies to Scotland only
If you’re thinking about selling your property, there are several things you will need to sort out and think about. These include:
- finding somewhere else to buy – can you ‘trade’ down and sell your current property but buy somewhere else. If you think you do have to sell you will have to find somewhere else to live
- getting a valuation to see whether the selling price will cover the mortgage and any repayment debts. If you are not going to get enough money from the sale you will have to negotiate with your lender because it might not be prepared to release the property for the sale
- if there isn’t enough money from the sale because there is negative equity you'll have to make up the difference. This is called a shortfall - see What happens if the money from the sale doesn’t cover what you owe
- working out how long it might take to sell the property and the costs involved, for example, estate agent's and legal fees. Until the property is sold, you will still be responsible for the mortgage payments and your mortgage debt may go up
- calculating what income you’ll have to live on after you sell it.
Get specific advice about the effect on your tax and benefits (and the financial situation of other dependent adults in the property). You should see an experienced adviser about eligibility rules for benefits if you are going to have a lump sum left over.
If you're thinking about selling your property to pay off your mortgage arrears, you should get advice from an experienced adviser, for example, at your local Citizens Advice Bureau - where to get advice.
If you're struggling to pay your mortgage, you are likely to have some mortgage arrears. If there is no obvious way of increasing your income to cover your mortgage costs and the arrears you might be thinking about selling your property.
Selling your property could give you a lump sum of money which you could use to pay off your mortgage. If you have enough left over, you may also be able to use it to pay off other debts.
Before you sell your home check if there is an agreement you can come to with your lender about the arrears. It is never too late to try to make an agreement.
- if you are eligible for a scheme that could give you support if you are in danger of losing your home - see Schemes to provide support to homeowners in danger of losing their homes
- if you are on benefits you might be able to take out a government loan to help pay your mortgage interest - see Deciding if you should apply for Support for Mortgage Interest.
If you can't pay your mortgage, you may be tempted to:
- just leave the property and hand back the keys to your mortgage lender. This is known as ‘voluntary repossession’; or
- do nothing about your mortgage debts and wait for your mortgage lender to go to court to repossess your property. You might think that by then your circumstances will have changed and you can pay off your arrears. If this is because you know there will be more income tell your lender this now and come to some arrangement.
If you really have no other way of getting some money to pay the mortgage arrears, it would be better to try and sell the property yourself, rather than hand back the keys or do nothing.
Even if you leave the property you will still be responsible for mortgage payments, buildings insurance and other costs until the property is sold. This is because it is still your property. The responsibility for paying all these costs only stops when the lender sells the property. This can take a long time if it is empty. Your property may also be more vulnerable to vandalism or damage if it is unoccupied.
Once the property is sold, your mortgage lender is likely to get a lot less for it than you would on the open market. Properties where the owner has been evicted (called repossessions) or the keys have been handed back to the lender often sell for a lot less. This could mean that you would still have a debt to pay. Lenders often sell at auctions where sale prices tend to be lower.
If your lender asks you to give up the keys, you don’t have to do this. If your lender wants to repossess the property, it still has to get a court order before it can evict you. If you want to understand more about what happens in the court proceedings to repossess your home see Legal action for repossession and eviction. You also need to think about finding somewhere to live.
If the money from the sale of the property is not enough to repay what you owe, you will have to pay the difference. This is called a shortfall.
You will need your mortgage lender's permission to sell the property if you're not going to get enough from the sale to cover what you owe on the mortgage.
The lender will send you a bill for the shortfall. If you are unable to make an arrangement to repay it, your lender may go to court to force you to pay this amount.
In most cases, there is a time limit for your lender to take action to recover a shortfall. The question of time limits for the recovery of a mortgage shortfall can be complicated and it's best to get advice.
If you don't pay off the mortgage shortfall and then buy another property, the lender of your first property may take court action against you. If they get a court order against you for the debt and you don't pay up, they could then apply for a court order against your new property. This means that, when you sell the new property, the proceeds of the sale will be used to repay the shortfall. A lender has a number of options about how to get money back because of a shortfall.
If you owe a shortfall on your mortgage after you have been evicted for mortgage arrears, you should get expert advice. You can get advice from a Citizens Advice Bureau - where to get advice.
If you have other debts besides a mortgage shortfall, you should get help from an experienced debt adviser. For more information about debt advice, see Help with debt.
If you're selling your property to clear your mortgage debts, you will need to think about where you are going to live.
If you're thinking about applying to your local authority to be rehoused as homeless, you will need to talk to the correct department as soon as possible about this because in some circumstances they will consider you to be intentionally homeless and may not agree to re-house you. This also applies to people who have handed back the keys to their mortgage lender. If you are going to apply to the local authority for housing as a homeless person, you should not hand back the keys without first obtaining the permission of the local authority. If the local authority will not agree to you handing back the keys and being treated as homeless, you should wait until a possession order has been granted by the court before leaving the property.
If you think you're going to be homeless once you've sold your property, you should get advice from an experienced adviser. Your local Citizens Advice Bureau will be able to help - where to get advice.
For more information about finding somewhere to live, see Finding a home to rent. For information on how to make a homeless application to the council, see If you're homeless or at risk of homelessness.