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Selling your home and voluntary surrender

Introduction

If you cannot pay your mortgage, you have been through the Mortgage Arrears Resolution Process (MARP) and you have not agreed an alternative payment arrangement with your lender, the lender then classifies your mortgage as unsustainable.

Under the Code of Conduct on Mortgage Arrears (pdf), the lender must now inform you in writing about other options and their implications for you. These options all involve complex legal and financial transactions. You should always take legal and financial advice before making any decisions.

The options include the following:

  • Voluntary sale: you sell your home and pay the proceeds towards what you owe on the mortgage
  • Voluntary surrender: you transfer the ownership of your home to your lender, to be sold by them
  • Trading down: you sell your home and transfer your mortgage loan to a cheaper property
  • Mortgage-to-rent: you transfer the ownership of your home to a housing association and stay in it as a tenant - read more in our document on the mortgage-to-rent scheme

You can also explore the option of a Personal Insolvency Arrangement (PIA).

What else the lender must tell you, in writing

The lender must warn you that it may start repossession proceedings within 3 months of the date of the letter, or 8 months after the mortgage arrears first arose, whichever is later, as you are now outside the MARP and have lost its protections.

The lender must tell you what happens about any debt outstanding after repossession or sale of your home.

It must also tell you about your right to consult with a Personal Insolvency Practitioner (PIP) and point you to information on personal insolvency options.

It must inform you about your right to appeal (pdf) or complain and the importance of taking independent legal and/or financial advice. As part of the Mortgage Arrears Information and Advice Service, your lender will pay ?250 for a consultation with an accountant of your choice, from the list of participating accountants.

The Money Advice and Budgeting Service (MABS) has published a factsheet (pdf) on selling your home to pay off your mortgage, along with a guide (pdf) to the relevant sections of the Code of Conduct on Mortgage Arrears.

Voluntary sale

If you opt for voluntary sale, the lender will send you a voluntary sale agreement to sign. You will need to take legal advice before signing it. In general, these agreements cover such matters as:

  • Whether you or the lender will choose the auctioneer to carry out the sale
  • Who will cover the legal costs of the sale, or whether you will split them with the lender
  • Whether the lender may accept or reject offers being made for your home
  • What will happen if no acceptable offers are received within a certain time
  • How any shortfall from the sale will be handled

The agreement may also contain a valuation of the property. It is recommended that you should always get your own independent valuation, rather than accepting the lender's valuation, which may be higher.

If your home is in negative equity, which means that the sale will not cover the balance outstanding on the mortgage, you will still owe the difference to the lender, unless they agree to write off or write down the amount that you owe.

Voluntary sale is recommended over voluntary surrender, as you are more likely to get a better price if you sell the house yourself rather than letting your lender handle it.

Voluntary surrender

Voluntary surrender is a formal legal arrangement whereby you sign over the ownership of your home to your lender so that it can be sold. Simply posting the keys to the lender (known sometimes as jingle mail) or leaving the property does not count as a formal surrender. If you do not formally transfer ownership of the property, you still owe the mortgage, along with any arrears that build up over time.

If you opt for voluntary surrender, the lender will prepare a legal agreement to cover the proposed arrangement. Again, you will need to take legal advice before signing any such agreement. In general, the agreement will cover such matters as:

  • Transferring the ownership of your home to the lender
  • Who will cover the legal costs of the sale, or whether you will split them with the lender
  • When you will have to move out
  • How any shortfall from the sale will be handled

The lender is obliged to get the best price possible for your home. It is recommended that you get your own independent valuation, which may be higher than what the lender expects to get for it. It is also recommended that you agree the costs of any necessary repairs with the lender, as well as any security costs if the property is being left empty for a time.

If the sale of your home does not cover the balance outstanding on the mortgage, you will still owe the difference to the lender, unless they agree to write off or write down the amount that you owe.

Trading down

If you sell your home and buy a cheaper property, this is known as trading down. After your home has been sold, you use the available money to pay off your arrears and reduce (or pay off) the remaining mortgage balance. You will now have a new mortgage, to cover the cost of your new home and any shortfall from the sale of your current home.

While several lenders offer trade-down mortgages, and they can be a very suitable option, it is worth noting that the numbers of people taking up such options are very small, compared to more widely used options for mortgage restructuring.

If your home is being sold, surrendered or repossessed

As soon as you get the letter from your lender stating that your mortgage is unsustainable, you can apply to the local authority to be assessed for social housing. You do not have to wait until you are actually out of your home. The local authority will assess your household's eligibility for social housing, taking your income into account. It will also assess your need, based on several factors, including whether or not you have received an "unsustainable" letter from your mortgage lender. Read more in our document on applying for local authority/social housing.

If you are placed on a local authority housing list after a full housing assessment, but you have not been allocated social housing, you may be able to qualify for Rent Supplement if you move into private rented accommodation. Read more in our document on Rent Supplement.

Sources of help and support

As well as the Money Advice and Budgeting Service (MABS), there are many other organisations that can help people in your situation. Many of these are listed in our document on mortgage arrears.

Last edited: 29/07/2015