Debt and your home


Debt and your home


Anyone struggling with debt worries about the day lenders come calling to collect. That worry is heightened for homeowners, who stress about losing the roof over their heads if they can’t repay the money they owe.

In this guide we’ll explore the issue of debt and your home, including what to do if you’re in rent or mortgage arrears, whether lenders can take your home from you, and the best debt solutions for protecting your property.

I’m in arrears with my mortgage. What can I do?

Falling behind on your mortgage payments can lead to serious consequences, but most mortgage providers have to explore all other options before looking at repossession, especially if it is going to work out at a loss for them.

All providers are regulated by the Financial Conduct Authority (FCA), whose job is to make sure consumers are treated equally and fairly. As such, if you feel you are being treated unfairly, they have the power to step in.

It’s always best to keep your mortgage provider in the loop with your situation. If they know what’s going on, they’ll be more likely to work with you and help you pay back your arrears in a way that suits you.

I rent my home, will it be affected?

If you’re a renter, most debt solutions will not affect your tenancy, and you don’t have to let your landlord know.

What’s more, although most debt solutions are noted on your credit file, they shouldn’t affect your ability to rent a new property.

However, you may be asked to pay a higher deposit, have a guarantor, or pay your rent in cash each month as a form of security.

If you’re in arrears with your rent, you may not be able to include this in some debt solutions, particularly if it is your current tenancy.

Generally, you’ll be given an allowance with your budget to pay your rent along with the arrears, reducing your chances of eviction.

The only exception to this is if you’re going into sequestration, as many rental agreements contain a clause that renders this a breach.

Which debt solutions will help me protect my home?

Debt Management Plan

A Debt Management Plan (DMP) is an informal UK debt solution designed to help you repay unsecured debt like payday loans and credit cards. Under a DMP, you will work out a budget for repaying your debts, and make a monthly contribution towards any creditor or company you owe money to.

As a homeowner, a DMP should have no obvious effect on your home. Your mortgage is considered a priority debt, so your repayment plan will factor in money paid towards your house. As long as you maintain your payments to creditors, you can repay your debts without putting your home at risk.

Debt Arrangement Scheme

A Debt Arrangement Scheme (DAS) is one of the most popular debt solutions in Scotland. It involves you setting up a Debt Payment Programme (DPP) in order to repay your debts at an affordable rate, while being protected from legal action by creditors.

Unlike a Debt Management Plan, a DAS will impact your home if you hold significant equity in the property. If that’s the case, you may be asked to remortgage your home to release that equity towards the arrangement, but as long as you maintain payments towards your debts, there’s no reason you can’t carry on living in the property.

How can I protect my home if I’m not in a debt solution?

If you’re not in a debt solution, there is the option to use any available equity in your home to help clear your debts. This is normally done by taking out a second mortgage, either with your current provider or switching to a different one, also known as an equity release.

Equity can be released to you in one large payment, or several smaller ones. It often comes with a lower interest rate than your other debts, giving you the opportunity to save more money in the long term.

However, the loan is secured against your property, so there is still the potential for you to lose your home if you struggle to make the recalculated mortgage payments. If you are thinking of going down this route, it’s important to make sure you have all the relevant information in order to make a reasonable decision.

Is it a good idea to roll your debt into your mortgage?

People with existing debts are often attracted by the idea of rolling that debt into their mortgage. Credit card debt, payday loans, and other unsecured debts come with high interest rates, meaning it can be difficult and expensive to repay lenders.

Mortgage rates, on the other hand, offer borrowers much lower repayments. The theory is that, by adding unsecured debts to your mortgage, you can clear things like credit card debts at the same time as making your mortgage repayments, and at a better rate.

While this is possible, it does come with a level of risk. First, it won’t save everyone money. While interest on your credit card debt may be higher than on your mortgage deal, your credit card debt comes with a shorter payment term.

Rolling it into your mortgage might lower your payments, but you may have to pay more money overall depending on how long your mortgage payment term is.

Second, you’re turning one kind of debt (unsecured) into another kind of debt (secured). Your mortgage lender offers you lower rates because, if something goes wrong, they can repossess your home to recoup their money. By combining all existing debts with your mortgage, you’re putting your home at risk. Should you fail to repay any of your creditors, you could face enforcement action.

Can a creditor take my home from me?

For homeowners in serious debt, the ultimate fear is that the people they owe money to – their creditors – will take their homes from them. This is possible, but not without a court order like a County Court Judgment (CCJ).

If you refuse to repay a creditor, they may take legal action, like seeking a County Court Judgment for example – a court order that forces you to repay money you owe.

While CCJs are only available in England and Wales, plus Northern Ireland, there are similar court orders available in Scotland.

The people most at risk of losing their homes are those in debt to mortgage lenders. If you take out a loan secured against your home, and don’t pay off your debts, there are a number of ways in which lenders can look to recoup money from the secured debt.

The most obvious is a charging order. Once a lender has secured a charging order, they can appeal to the court for another order which will force the sale of your house. When the application process is complete, the property will sold, and creditors will take payment from the money raised.

My home is worth less than my mortgage, what does this mean?

This is referred to as being in negative equity, and it’s a common occurrence in today’s ever-changing property market.

If selling your home is not in your immediate plans, negative equity might not necessarily be in your list of worries. However, it can leave you with a shortfall when you do decide to sell. Our best advice is to speak to estate agents and get multiple valuations to understand how much of a shortfall you have.

Your home may not be in negative equity forever. It is possible for the market to change and the value of your home to increase. There’s also the option to try and pay more towards your mortgage beforehand (if you can afford to) to reduce the shortfall amount if you then decide to sell.

I’ve received a notice of repossession, what should I do?

If you have received a notice of repossession, it’s very important to follow any instructions it gives you. Call your mortgage provider and discuss your situation; repossession is normally their last resort to recover the money you owe, so they may still be willing to work with you.

If the notice includes a court date, it’s vital that you attend. Understandably, this may cause you stress, but attending the court hearing can give you the chance to offer a payment plan to your provider and avoid losing your home.

If you are struggling financially and are worried about your home, contact us today. Our friendly advisers are always on hand to offer free and confidential advice to help you find the best way to deal with your debts.

Where can I get debt advice as a homeowner?

If you’re a homeowner who has struggled with debt, or has a patchy credit history, it’s understandable that you might be worried about losing your home.

If that’s the case, you’ve come to the right place by visiting the Carrington Dean website. We’re the biggest debt management company in Scotland, and one of the biggest in the UK. Our advisers have all the knowledge and experience you need to help you protect your home from creditors.

For more professional debt advice, more information on debt and your home, or to discuss entering a formal debt solution to protect your home, talk to one of our team today on 0800 043 1320.

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