Mortgage arrears: what happens, and what you can actually do
Mortgage arrears put your home directly at risk and take absolute priority over every unsecured debt you have. Here is the escalation process in order, what your rights are, and how this debt is treated in each UK debt solution.
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Where this debt sits in the hierarchy
The consequence of not paying is losing something essential — your home, your supply, your goods, or in rare cases your liberty. Priority debts come before credit cards, loans, overdrafts and catalogues, however aggressive the letters from those creditors are.
What actually happens, in order
First missed payment
Contact the lender immediately. Early engagement changes outcomes materially.
Forbearance
Options can include a term extension, a temporary switch to interest only, capitalising the arrears, or a payment arrangement.
Possession claim
The lender applies to the county court. You will receive papers and a hearing date.
Hearing
Under section 36 of the Administration of Justice Act 1970 the court can suspend possession if you can pay the arrears over a reasonable period — which the courts have accepted can be the remaining mortgage term.
Repossession and shortfall
If the sale does not cover the debt, the shortfall remains due, and the limitation period for it is twelve years for the principal.
What people are not usually told
Check whether you have Support for Mortgage Interest available, whether the lender will capitalise the arrears, and whether a term extension makes the payment sustainable. Get free specialist housing advice — Shelter, and your local authority's housing options team — rather than general debt advice, and never miss a court hearing. Attending, with a realistic offer written down, is the difference between a suspended order and an outright one in a very large number of cases.
How this debt is treated in each solution
Every formal solution handles debts differently, and this one is no exception.
| IVA | DMP | DRO | Bankruptcy | |
|---|---|---|---|---|
| Formal insolvency | Yes | No | Yes | Yes |
| Where it applies | England, Wales and Northern Ireland | The whole of the UK | England and Wales (Northern Ireland has its own version with different thresholds) | England, Wales and Northern Ireland (Scotland calls it sequestration) |
| Typical duration | 60 months, or 72 with home equity | Until the debt is repaid — no fixed end | 12 months | Discharged in 12 months; payments up to 3 years |
| Monthly payments | Monthly, affordability-based | Monthly, flexible, changeable | No payments at all | Only if you have surplus income |
| Your home | Excluded; equity sets the term | Not affected | Not available to homeowners | May be sold |
| Credit file impact | 6 years from the start date | Defaults recorded, 6 years each | 6 years from the order date | 6 years from the order |
| Public register | Listed on the public Individual Insolvency Register, which anyone can search. Your address can be withheld only on evidenced safety grounds. | Nothing public. A DMP is a private arrangement. | Listed on the public Individual Insolvency Register. | Listed on the public Individual Insolvency Register, and in some cases advertised more widely. |
| Fees | Paid from your monthly payments | Free providers available | Free — no application fee | £680 application fee |
| Creditor protection | Legally binding on included creditors | None — entirely voluntary | Full protection, then write-off | Full protection, then discharge |
Arrears existing at the start date can usually be included in a formal solution. Ongoing liabilities — this year's council tax, current rent, current energy usage — cannot be, and must be budgeted for separately.
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Common questions
Should I use an IVA to deal with mortgage arrears?
Mortgage arrears are secured and are not normally included in an IVA. What an IVA can do is deal with your unsecured debts so that you have more available to put towards the mortgage. Any adviser who does not separate the secured and unsecured position clearly is not giving you a full picture.
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