Debt and your home are intertwined when secured loans, like mortgages, are involved. Failure to repay may lead to repossession. Clear communication and seeking advice are crucial to dealing with housing debt.
For most people, their home is their number one top priority when they're in debt. However, if you're struggling to keep up with your rent or mortgage payments, you could be at risk of eviction or repossession.
Debt can affect your home in several ways. Fortunately, there are steps you can take to protect your home and your belongings when you're in debt, allowing you to sleep easier and, more importantly, keep a roof over your head.
If you own or rent a property and you're struggling to make payments to your mortgage lender or landlord, you could end up with 'housing debt'.
Here is a quick guide to the different types of housing debt and how it can affect your home:
When you fall behind on your rent payments, you'll officially be in debt or 'arrears' to your landlord. Rent arrears are classed as priority debts, which means there can be serious consequences for not paying them.
Because you don't own the property, your landlord can't apply for a repossession order. However, they can go to court and apply for an eviction order, which is a court order to evict you from the property.
It's important to inform your landlord as soon as you know you won't be able to pay your rent. They might give you a payment break or lower your payments until you get back on your feet.
Missing mortgage payments can have serious implications for you and your home. If you miss several payments to your mortgage lender without explaining why, they might apply for a court order to repossess your property.
This can sound daunting and it's normal to fear the worst, but it might be possible to come to an agreement with your mortgage lender to repay the debt in full or in instalments before it escalates to this stage.
It's important to act quickly if you think you won't be able to make your next mortgage payment. This might prevent your mortgage lender from taking legal action.
The impact of debt on your home depends on whether you're grappling with secured or unsecured debts. The main difference between secured and unsecured debt is that secured debt gives your creditor the right to seize the item it's secured to in order to recover the money if you can't or won't pay.
Here is a brief guide to how both secured and unsecured debt can affect your home:
The most common type of secured debt is a mortgage. When you sign a mortgage agreement, you agree to hand over control of the property as 'security' or 'collateral'. This means that, if you don't make payments as agreed, secured creditors (the people you owe money to) have the right to take back the property and sell it to help them recover the money owed.
Many borrowers prefer secured loans over unsecured loans because it often means they can borrow more at a lower interest rate.
However, while this may sound like you're getting a better deal, it comes with the added risk of potentially losing your home if you find yourself in a situation where you can no longer make payments as agreed.
Unsecured debt refers to debt that isn't tied to an asset, meaning none of your belongings can be forcibly sold to repay the debt - even if you don't pay.
However, if you don't pay an unsecured debt (e.g. payday loans, rent arrears, credit cards), unsecured creditors will likely take further action against you in the form of a County Court Judgment (CCJ) and this can impact your ability to continue living in your home.
Having a CCJ will have a detrimental impact on your credit score and prevent you from being able to access further credit for several years, which can put any plans to purchase a home on hold.
In most cases, an unsecured creditor can't take your house because the debt isn't tied to the property in any way.
However, in extreme cases, a creditor might apply to the court for a charging order which takes an unsecured debt and secures it to your home, turning it into a secured debt. This gives the newly secured creditor the right to repossess your home if you continually fail to repay what you owe.
Before a charging order can be put in place, you must already have a CCJ and your creditor must apply for an interim charging order first. This is a temporary measure to secure the home, preventing you from selling or transferring it while the court considers the possibility of a final charging order.
If you try to sell or remortgage your home while a final charging order is in place and before the debt is fully repaid, any money made from the sale of the property will go towards repaying the debt. In some cases, an order of sale will also be made, which forces the sale of your home.
For debts regulated by the Consumer Credit Act (e.g. overdrafts, personal loans, and credit cards), interest will stop at the point the CCJ is issued. For unregulated debts worth over £5,000, a statutory interest rate of 8% will be added.
“No fuss, just simple, honest advice. Communication is good and they make the process as easy as they can.”
Being in debt will almost always affect your credit score, but the extent of the impact depends on whether the debt is secured or unsecured and whether your landlord or mortgage lender has taken further action against you.
For example, if you miss a rent or mortgage payment and don't pay the full amount owed within a certain time, your lender will likely report the missed payment to the main credit reference agencies. They will then update your credit file as necessary, which will result in a lower credit score and potentially a late fee.
However, if you continue to miss housing payments, your account will be at risk of defaulting (closed due to continuous non-payment) and this can cause your credit score to drop even further.
Once your account has defaulted, it will be extremely difficult to find a lender willing you approve you for anything from a credit card or personal loan to a bank account or even a phone contract for several years.
Because your mortgage is secured to your home, not making payments as agreed will give your lender the right to repossess your property to recover the money owed. Similarly, while your landlord owns your rental property, missing payments can still put you at risk of being evicted.
In both cases, ignoring housing debt can lead to you losing your home and being forced to find somewhere else to live at short notice. However, before this happens, your creditor should follow the correct court proceedings and give you several opportunities to repay what you owe.
Both the eviction and repossession process can take anything from a few weeks to a few months to complete and may involve a court hearing where you'll have the chance to explain your situation to a judge.
When it comes to housing debt, it's important to deal with any missed payments or default notices as soon as possible. Even if you can't afford to repay the debt in full, coming to an agreement with your mortgage lender or landlord can help you find a solution to deal with your debt that suits both parties.
If you're in rent or mortgage arrears and you're worried about losing your home, entering into a debt solution can reduce your monthly debt payments to an amount you can comfortably afford.
Some debt solutions don't require you to hand over your assets, meaning your home will be protected for the duration of your arrangement.
Here is a quick guide to some of the debt solutions that can help you protect your home:
An IVA is a formal agreement between you and your creditors to repay your debt through a series of monthly payments based on your income and expenditure, meaning you should always be able to afford your monthly payments. They are only available in England, Wales, and Northern Ireland.
Most IVAS last five years in total and, at the end of your arrangement, any remaining debts will be written off. During this time, all interest and charges on the debt will be frozen and your creditors won't contact you about the debt.
When you have an IVA, you'll usually be asked to remortgage your home during the final year of your arrangement. However, if you can't remortgage or it would be too expensive to do so, your IVA will simply be extended to allow you to make extra payments.
PTDs are commonly referred to as the equivalent of IVAs in Scotland. They allow you to repay your debt through a series of monthly payments based on what you can comfortably afford and put a stop to further interest and charges being added for the duration of your arrangement.
Once your PTD has been approved by the majority of your creditors, it may be possible to exclude your home from your arrangement, which means its value won't be taken into account and you won't be forced to sell it to recover the debt.
Most PTDs last four years, after which time any remaining unsecured debt will be written off.
A DMP is an informal agreement between you and your creditors to repay your non-priority debts, such as credit cards, personal loans, and store cards, at an affordable rate.
This might be a suitable option for you if you own your home and can afford to make monthly payments towards the debt.
The level of equity in your property also won't be taken into consideration with a DMP, so as long as you stick to the terms of the agreement and keep up with your repayments as agreed, you can apply regardless of whether you own or rent your home.
Debt consolidation is when you take out a loan to repay multiple debts through a single monthly payment.
Rather than making monthly payments to several creditors, you just need to make a single monthly payment to a debt management company. They will then distribute the money among your creditors, simplifying the debt repayment process.
Depending on your situation, you might also be able to reduce your monthly payments and benefit from lower interest rates.
A DRO is a way to deal with your debt if you owe £30,000 or less and have little to no spare income or assets. It's commonly referred to as a cheaper and less formal alternative to bankruptcy.
During a DRO, you don't have to make any payments towards most of the debts included and any remaining debts will be written off once your arrangement comes to an end, which usually happens after a year.
Unlike some other debt solutions, a DRO is legally binding, which means your creditors can't take further action against you while your DRO is active.
Getting a lender to agree to give you a mortgage when you're in debt can be extremely difficult, but it's certainly not impossible. How smooth the process will be for you, however, depends on your individual circumstances and whether you're in a debt solution to repay the debt.
Most mortgage lenders just want to be reassured that you can make your payments in full and on time, so being in debt solution might actually help your chances of getting a mortgage as it proves you're actively repaying your debt.
Here are some other factors that will be taken into account when you apply for a mortgage with debt:
When you apply for a mortgage, one of the first things lenders will look at is your debt-to-income ratio. This is just another name for the percentage of your gross monthly income that you spend on debt repayment each month.
For example, if your gross monthly income is £1,250 and you pay £250 towards your debt each month, your debt-to-income ratio is 20% (250/1,250 x 100).
Generally, the lower your debt-to-income ratio, the more confident a lender will be in entering into a credit agreement with you and the better chance you'll have of being approved for a mortgage. Most mortgage lenders favour a debt-to-income ratio of at least 35% or less.
Another factor that will be considered when you apply for a mortgage is how you handle both day-to-day and larger expenses.
Even if your financial situation is less than perfect, some lenders might consider your mortgage application if you can prove you've cut back on non-essential expenses.
For example, if you can prove you've reduced or eliminated discretionary expenses, such as takeaways and nights out, this can demonstrate that you have a responsible attitude towards debt repayment and are committed to dealing with your debts effectively.
Another important factor that is considered when you apply for a mortgage is your credit rating. This is a three-digit number based on your credit history that determines your 'creditworthiness' (the likelihood that you'll repay money borrowed).
Generally, the better your credit rating, the better your chances of qualifying for a mortgage.
Being in debt will naturally decrease your credit score - regardless of the type of debt you have - but it will gradually improve over time if you make regular payments towards what you owe.
If you've received a notice of repossession, it's important you follow any instructions you are given and, if necessary, seek expert debt advice before you respond. Most mortgage lenders will only send a notice of repossession after several failed attempts at getting in touch with you so it should never come out of the blue and take you by surprise.
Similarly, if the notice of repossession includes a court date or court hearing, it's crucial that you attend. It might sound daunting, but it can give you an opportunity to explain your situation to a judge and agree on a payment plan, which can prevent you from losing your home.
Even at this stage, it's not too late to negotiate a repayment plan with your lender and, if you're in a position to make small payments towards the debt, this will be taken into account by the judge. The court will then decide if you should be allowed to stay in the property or not.
When your home is worth less than your mortgage, this is known as being in 'negative equity' and essentially means the value of your home is less than the amount you still owe on your mortgage.
For example, if you bought your home for £150,000 and have an outstanding mortgage balance of £120,000 but the value of the property has since dropped to £100,000, you'll be £20,000 in negative equity.
This won't necessarily cause any problems for you unless you're planning to sell your home in the near future as the negative equity will leave you with a mortgage 'shortfall'.
In most cases, you'll need to make up the mortgage shortfall to be able to sell your home. However, if you're planning to continue living in your current property and meet your mortgage payments each month, negative equity shouldn't impact your daily finances.
From writing off a large portion of your debt, to readjusting your budget, we’ll find a solution that suits you.
For most people, a property will be the single most valuable thing they'll own in their lifetime. Because of this, a creditor might threaten to take legal action against your home in an attempt to force you to pay your debts or, in rare cases, apply for a charging order to secure an unsecured debt to your home.
However, while there is a strong link between debt and your home, there are steps you can take to protect your home and prevent you from losing it to legal action. When it comes to housing debt, the sooner you seek expert help and advice, the sooner you can get your debts under control and stop the situation from escalating.
Repaying the debt or coming to an agreement with your creditor over how to repay the debt can stop an eviction or repossession. If you're struggling with your rent or mortgage payments, don't hesitate to reach out for expert advice before the situation escalates.
Free debt advice
that won’t affect your credit rating
We are rated 5 star by
more than 93%
on Trustpilot
We advise on all UK solutions
to help manage your debt
We’ve helped over
people with their debt
The UK Debt Expert Group has helped over 270,000 people in the UK deal with their debt
Was struggling to keep up
I was struggling to keep up with payments to my credit card and loan providers, it was literally leaving me with pennies after paying the monthly payments. After talking to this company it made my life so much easier and even left me with a lot of extra money each month.
Robin Lacy
The team is understanding, knowledgeable and willing to help
The team is understanding, knowledgeable and willing to help. I was in a total state of confusion not knowing where to turn. With the challenges I was facing at the time compared to now, I really can not thank you enough for your help.
Mr Camara
From stress to relief
Before the call I was so stressed, literally had nowhere to turn & wasn’t sure if my situation could be resolved as I felt I was just stuck in a rut with financial issues. Claire was fantastic, assured me she would do what she could to help, throughout the whole call she kept reassuring me & made me feel so much at ease. By the end of the call I felt so much relief & my financial stress was over.
Naheem Ali
Effortless personal experience
I spoke to Allison who was very helpful over the phone, she went through all of my options available to me without any judgement at all which was nice. Very personable phone manner and made the whole experience effortless. Very helpful.
Liam
The team are really supportive
The team are really supportive and helped me every step of the way, although I hardly had to do anything anyway. They have kept in touch to check on me regularly and make sure I am happy with everything and offered their support throughout. Couldn’t recommend them enough for those who are in stressful financial situations and need help.
Abbie
I spoke to Zahid
I spoke to Zahid and he explained everything to me , what options were available and helped me decide what would be best for me, the whole process was simple and straightforward and at an affordable monthly payment
Ruth Igiebor
Reviews from UK Debt Expert’s Trustpilot in 2024.
