Can I Sell My House with Mortgage Arrears?

September 1, 2020
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If you are struggling to keep up with your mortgage payments, you might be wondering if selling the property is an option. Many people ask us: can I sell my house with mortgage arrears? This will depend on a number of factors and will nearly always be linked to your personal circumstances. While one person might be able to sell a house with mortgage arrears and walk away, another person might end up owing more money than is made from the sale. Read on to discover the steps you need to take if you want to sell a house with mortgage arrears.

First things first: speak to your lender

The first step you should take when you’re struggling to make your mortgage payments is to get in touch with your lender. If you are expecting your financial situation to improve in the future, they may be able to come to an arrangement to help you through this difficult stretch. But you will never know until you get in touch with your lender.

Your mortgage would typically be your largest expenses every month, so if you are struggling to make your mortgage payments, you may be struggling with other debts. If there is no obvious way to increase your income to cover the shortfall, selling your home might be the only option. This could give you a lump sum that would enable you to pay off your debts and move on.

Get a valuation

If you decide to sell, you will need to get a valuation on the property. This will help you to determine if the sale of the property would be enough to pay back any outstanding amount on your mortgage and your mortgage arrears. If the property has increased in value since your first bought it, you could walk away with a lump sum that might allow you to get your life back on track. But it doesn’t always work this way, particularly in a harsh economic climate. If the value of the property has fallen below what you owe the lender, this is called negative equity.

What if there is negative equity?

Negative equity occurs when a property loses value. This might happen due to a downturn in the housing market. If the value dips below what you still owe on the mortgage, this is called negative equity. If you sell a home with mortgage arrears with negative equity, you will still owe your lender money after the sale. This is called a shortfall and it could leave you worse off. You would need the lender’s permission to sell the property if there will be a shortfall.

In this situation, a homeowner may be tempted to give back the keys to the property and relinquish ownership to the bank. This is known as voluntary repossession. In this situation, a lender would ask you to sign an agreement saying that you will still pay any shortfall after the sale of the property. So if the home is sold for less than the value of your mortgage, you will still owe for the outstanding amount, in addition to any mortgage arrears.

Could you “trade down”?

If you aren’t dealing with negative equity, you could choose to trade down to a smaller property. This is a popular choice for those in mortgage arrears who are not expecting their finances to improve. Finding a less expensive property to purchase and then selling your current property would allow you to reduce your monthly mortgage payments. You will also be able to pay off any arrears and you may even be left with a lump sum to help pay off any other debts you may have accrued.

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