What is a mortgage shortfall?
If you have had your home repossessed or you have handed back the keys to your mortgage lender, you may be told you still owe money. This happens when the amount your home is sold for is not enough to pay off the mortgage. The money you owe is called a mortgage shortfall.
Sometimes mortgage shortfalls also include:
- The monthly instalments and interest added while your home is being sold.
- Legal and estate agents’ fees.
What can lenders do?
If you have a mortgage shortfall, lenders can take court action. There are laws about how long they can do this for.
- Mortgage capital is the money you originally borrowed. If you owe mortgage capital, the lender has 12 years to use court action to make you pay.
- Mortgage interest is what you were charged to borrow the money. If you owe mortgage interest, the lender has six years to use court action to make you pay.
- If you write to the lender saying you owe them money or make a payment, this can reset the time limit. It gives them another 6 or 12 years to use court action. If you owe the debt jointly with someone else, they could restart the clock for you too if they make a payment.
- Many mortgage lenders have agreed that if they haven’t contacted someone to ask them to pay a shortfall within six years of selling the house, they won’t ask for the money back later.
What can I do?
If your lender hasn’t been in touch for some time, it would be best to speak to us before contacting them. Writing to the lender can reset the time limits for taking court action.
- Work out when you last made a payment or acknowledged the debt. If it was over 12 years ago, the lender does not have a legal right to get the money back from you.
- Check if your mortgage lender is a member of UK Finance. If they are, there are rules about when they can ask for the shortfall to be repaid.
- Has your lender written to you within 6 years of the sale saying there is a mortgage shortfall and that they intend to recover the debt? If you did not receive a letter, you may be able to complain.
If your lender is chasing you for payment and you know that your lender hasn’t run out of time, you can write to your lender for a breakdown of what they say you owe. We have sample letters you can use for this. These are worded very carefully so there is less chance of you saying something that would give your lender more time to take court action. You should ask for:
- The exact sale price of the house.
- Details of any valuations.
- How your lender has worked out the interest.
- Any fees or costs that have been added on.
Look at all the figures and see if the correct procedures have been followed. There are lots of different ways that you may be able to deal with anything that is still owed.
You may be able to:
- Complain if things haven’t been worked out properly or your lender hasn’t followed the rules.
- Agree to pay the money back at a rate you can afford.
- Pay a lump sum to settle the debt for less than you owe.
- Ask the lender to write off the debt if you can’t afford to pay anything.
- Use another debt solution to give you more time to pay or get some or all of the debt written off.
