Selling a House with Mortgage Arrears Before Repossession
This is a made-up example. The people, places and numbers are not real.
Yes, you can sell with arrears, and selling first usually leaves you better off. The rules, the timings and a worked London example.
- Category
- Circumstantial: mortgage arrears and a court claim
- Property
- Three bedroom 1930s terraced house with a rear extension
- Area
- Outer east London
- Main problem
- Seven payments behind, a court claim issued and two buyers lost on mortgage valuations
- Time to complete
- 7 weeks
- Value added
- About £36,000
01The Situation
You can sell your house with mortgage arrears, right up to the day the lender takes it back. The house is still yours until then. The arrears and the rest of the mortgage are paid off from the sale money on completion day. If the sale covers everything you owe, you do not need the lender's permission to sell. If it does not, the lender has to agree, because it will only release its charge on the house once it is paid or has agreed to take less.
Neil and Joanne Hollis have owned a three bedroom 1930s terraced house in outer east London since 2006. Neil is a self-employed plasterer. He hurt his shoulder and could not work for most of a year. Joanne works part time at a primary school. Their fixed rate had already ended, and the payment on the lender's standard rate was £2,450 a month.
They fell seven payments behind. In all they owed the lender about £392,000, including £17,150 of arrears and £600 of charges. Interest they were not paying was adding about £2,300 a month.
They had tried to sell. The house went on the market at £475,000. The first buyer, at £460,000, lost their mortgage when the lender's valuer saw cracking around the 1998 rear extension and asked for a structural engineer's report. The second buyer's lender valued the house at £430,000 and the buyer pulled out. Then the lender issued a possession claim. The court hearing was three weeks away.
02The Diagnosis
The Rules the Lender Must Follow
The FCA's mortgage rules (MCOB 13) say a lender must make reasonable efforts to agree a way of paying the arrears, must let you stay for a reasonable time to sell if no payment plan can be agreed, and must not repossess unless every other reasonable attempt has failed.
The Pre-Action Protocol
Before going to court, a lender must follow the Pre-Action Protocol for mortgage arrears. It must give you the arrears figures and two years of payment history, point you to free debt advice and reply to your proposals, giving reasons in writing within 10 business days if it says no. If you show you are taking reasonable steps to sell at a price an agent backs, the lender must consider holding off on court. If it decides not to wait, it must tell you why at least 5 business days before it starts the claim. Court should be a last resort.
The Mortgage Charter
The government and lenders covering around 90 per cent of home loans agreed the Charter in 2023 and renewed it in March 2026. One promise is that you will not be forced out of your home without your consent within a year of your first missed payment, except in exceptional cases. It does not stop the arrears growing, and it does not stop a court claim. It does not cover buy-to-let. Ask your lender whether it signed.
The Court Can Give Time
At the hearing, a judge can adjourn the claim or put the order on hold if you are likely to pay what is owed within a reasonable time, for example from a sale that is really happening (section 36 of the Administration of Justice Act 1970). A judge wants evidence: an agreed buyer, proof of funds and a date. Two failed sales are weak evidence.
How Long It Takes
Government figures for April to June 2026 put the middle time from a lender's claim to repossession at 49.1 weeks in England and Wales. After that, the lender still has to sell. So from the first letter to the lender's sale is often well over a year.
This House Was Hard to Mortgage
No buyer with a mortgage could proceed until the cracking was explained, and the building control sign-off for the extension could not be found. That ruled out most buyers within the three weeks they had.
03The Value
What repossession costs. The arrears keep growing, the lender adds its legal and court costs, and it charges for looking after an empty house. FCA rules say the lender must sell for the best price it can reasonably get, as soon as it can. In practice an empty repossessed house is sold as it stands and often fetches less than the owner would have got.
What happens if the sale does not cover the debt. The gap is called a shortfall. You still owe it. If the lender wants to chase it, FCA rules say it must tell you within six years of the sale. After that, the time limit to go to court is usually 12 years for the money you borrowed and 6 years for the interest. A shortfall can follow you for a long time, so it is worth a lot to avoid one.
Here are the sums for the Hollises, in three routes.
Sell Now to a Cash Buyer at £405,000, in Seven Weeks
Owed at completion, about £396,600. Their legal fees, £1,800. They keep about £6,600 and owe nothing.
Keep Marketing at About £445,000
If a buyer with a mortgage got through in five more months, they would owe about £403,500, plus about £3,000 of lender legal costs, £8,000 of agent's fees and £1,800 of legal fees. They would keep about £28,700. That is better, if it works. It needed the court to give time, the structural question to be settled and a third buyer's lender to say yes.
Let the Lender Repossess
About 11 more months before the lender's sale: £25,300 more interest, about £6,000 of lender legal and court costs, £1,500 of fees, £3,000 for the empty house and £7,500 to sell. The debt reaches about £435,300. If the empty house sold for £415,000, they would still owe about £20,300.
Staying until the bailiffs came would have saved them perhaps eight months of rent, about £16,800. Even then they would be worse off than selling now, with a shortfall the lender could chase for years and a repossession on both credit files. Missed payments stay on a credit file for six years.
The cash buyer priced it like this:
- Worth after work, about £510,000, based on three done-up terraced houses nearby at £500,000 to £520,000
- less stamp duty at the higher rates, £30,500
- less building work, £32,000: crack repairs, a new drain run, damp treatment, a kitchen, and getting the extension signed off
- less legal fees, an engineer's report and searches, £2,500
- less council tax, insurance and other holding costs, £4,000
- less their margin, about £36,000
That came to £405,000, about 91 per cent of the open market figure, with no survey or mortgage that could fail.
04The Execution
Day 1: Free Debt Advice
Joanne called a free debt charity. National Debtline, StepChange, Citizens Advice and MoneyHelper all give free advice, and Shelter helps with housing. The adviser checked their budget and benefits, and helped them write to the lender. If you get certain benefits, you may be able to get Support for Mortgage Interest, a government loan towards the interest.
Week 1: the Engineer
A structural engineer's report, £650, found old settlement that had stopped, not ongoing movement, and a broken drain under the extension. That gave the buyers something solid to price.
Week 1: Tell the Lender
Under paragraph 6.3 of the protocol, they sent the agents' valuations, the energy certificate, the engineer's report and their plan, and signed a letter letting the agent and solicitor update the lender directly.
Weeks 1 to 2: the Buyer
The house went to cash buyers whose mandates covered arrears and structural questions. Three offered: £390,000, £398,000 and £405,000. The highest came with proof of funds and no condition beyond its own survey.
Week 3: the Hearing
With an agreed sale, proof of funds and a timetable, the lender agreed to ask the court to adjourn the claim. Neil went to court anyway. Free legal advice is on offer at the court on the day through the Housing Loss Prevention Advice Service, whatever your income. The judge adjourned for 12 weeks.
Week 4: Exchange
Contracts were exchanged with a fixed completion date, which the lender's solicitor was told the same day.
Weeks 4 to 7: Moving
They rented a three bedroom house nearby for £2,100 a month. With the arrears on their files, Joanne's brother acted as guarantor.
Week 7: Completion
The lender's redemption figure, to the day, was paid from the sale. The lender closed the claim. As it was their only home, there was no capital gains tax.
05The Outcome
Bought for
£405,000
Spent
£69,000 on stamp duty, legal fees, an engineer's report, building work and holding costs
Worth After
About £510,000
Value Added
About £36,000
The Hollises cleared the mortgage, the arrears and the charges in full. They have no shortfall and no repossession on their record, and kept about £6,600. Had they waited for repossession, they would probably have owed the lender about £20,000 with nothing to show for it.
The Lessons
- You can sell with arrears. If the sale clears the debt, you do not need the lender's permission. If it will not, ask the lender early to agree to the sale and the shortfall.
- Tell the lender you are selling, in writing, with the agent's figures and the energy certificate. The protocol says it must then consider holding off court.
- Get free debt advice the week the arrears start, and use the free adviser at court if it gets that far.
- Count the costs of waiting: interest, legal costs and a forced sale price. A lower price that will happen often beats a higher one that may not.
- If the house has a problem lenders do not like, get it checked by an engineer or surveyor first, so a buyer can price it.
- This is general information, not legal or financial advice. Check your own position with a free debt adviser or a solicitor.
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