Unlike other debts, debt related to your home can be uniquely stressful. If you fail to repay your mortgage or fall into rent arrears, you may find yourself facing a situation where you and your family don’t have a place to stay.
In this guide we’ll examine housing debt, including what it is, what kind of debts can impact your home, and where you can get debt help if you’re worried you might lose your home.
Can a debt company take my house?
Unless the debt being collected is secured against the property and you’re in default, no debt collection agency has the power to seize your home.A housing debt is any debt that puts your home at risk. Housing debts can be directly related to your home, like defaulting on your mortgage or rent payments, or indirectly related; like failing to repay a bank loan secured against the property.
The thing that makes housing debt particularly daunting is that failure to repay can put your home at risk. If you owe money on an unsecured debt, like a credit card, creditors can chase you for payments but they won’t be able to seize your property.
If you default on your mortgage, on the other hand, creditors are within their rights to evict you and your family, sell the property, and use the funds raised to repay the debts you owe.
Continued failure to repay any form of secured debt might eventually threaten your home. Below are some of the most common examples of housing debt.
Your mortgage is a secured debt or secured loan. You borrow money from a mortgage lender to purchase your home upfront, with a view to paying it back over time.
While mortgage rates and your interest rate will vary depending on your financial situation, a mortgage generally offers people a more affordable way to purchase a property.
If you fall behind with mortgage payments, however, your home will be in jeopardy. Not only are missed mortgage payments recorded on your credit file, failure to catch up with mortgage arrears can result in your home being repossessed by the lender
Rent arrears are similar to mortgage arrears, but instead of borrowing from a mortgage broker in order to fund your purchase of the property, you rent the property from a landlord who you will pay monthly or quarterly.
Renters have fewer rights than property owners so if you fall into rent arrears, you face eviction from the property unless you can settle on a payment plan with the landlord.
A secured loan is any loan attached to your property or a home you own. The purpose of a secured loan is that, by putting your property up as collateral, you minimise the risk to the lender.
The problem with secured loans is that, by their very nature, they put the property at risk if you default. The lender can apply to the courts to have your property repossessed and sold in order to get their money back.
In short, no. Secured loans pose a direct threat to your home if you find yourself in default, but a debt collector can’t repossess your home over a debt that isn’t secured against the property.
That doesn’t mean you shouldn’t worry about unsecured debts. Payday loans, personal loans, and credit card debt all have the potential to upend your financial stability if you don’t get on top of repayments quickly enough.
Creditors like credit card companies can chase you for payments and even take legal action against you over unpaid debts, while any defaulted payments will seriously harm your credit score.
a debt collector can’t repossess your home over a debt that isn’t secured against the property.
If you’re struggling to repay your debts and you’re worried that your home could be repossessed, a formal debt solution can protect your home while giving you the time you need to repay what you owe.
More commonly known as an IVA, this debt solution consolidates all of your debts into a single monthly payment, and writes off debt you can’t afford at the end of your payment term.
You can’t include secured debts like mortgage arrears in an IVA, or things like child maintenance arrears, but an IVA allows you to save money on your unsecured debts, and gives you the space you need to cover essential costs like your rent or mortgage.
An IVA is only available in England, Wales, and Northern Ireland. The Scottish equivalent is a Trust Deed, which operates in much the same way – transforming your unsecured debts into affordable monthly payments.
Like an IVA, a Trust Deed is not suitable for secured debt, but your monthly payment is based on what you can afford. That will take care of your unsecured debt, and leave you enough money in your budget to deal with your and housing debt at the same time.
Debt consolidation combines all of your debts into a single loan. Rather than managing multiple monthly debt payments, you only have to pay off a single ‘lump sum’ loan.
With favourable interest rates and charges, a debt consolidation loan can free up your budget and give you more room to catch up with your mortgage or rent arrears.
Other debt solutions that could help you deal with housing debts include a Debt Management Plan or Debt Relief Order, but you should always seek free debt advice first, either from charities like Money Advice Service, or a trustworthy debt management company.
How we helped Paige
It was literally the best decision of my life, and it has actually changed my life, cheesy as that sounds, it has changed my life.
Paige , IVA Customer
If you have outstanding debt that is so substantial you simply have no reasonable way of repaying it, you may be considering bankruptcy as an option.
It’s important to know that bankruptcy won’t protect your home. It’s considered a financial last resort, and involves you handing over all of your assets – and potentially paying a monthly fee – in exchange for your debts being written off.
If you file for bankruptcy, your unsecured debts will be taken care of, but you will also lose your home, your car, and any other assets of value that you own.
Remortgaging to pay off debts is when you replace your existing mortgage with a better mortgage deal, recessive a lump sum from your existing lender, and use that money to pay off your debts.
While it’s possible to get a remortgage deal that allows you to raise enough money to pay off credit card debt and other debts, you should always seek debt advice before you do so.
There is a trade-off involved in remortgaging. It’s only viable if you have a sizeable amount of equity in the property and, even then, it may result in you extending your mortgage payment term.
Facing any form of financial difficulty can be stressful, but if your debts are so bad that you worry your home might be at risk, it can really start to impact your personal circumstances.
That’s where Your Debt Expert can help. Our debt specialists can help you deal with all manner of housing debts, and even advise you on a debt solution that could help you safeguard your home.
For free advice from a specialist debt adviser, talk to Your Debt Expert today on 0800 082 8086.
Advice and support is also available at Money Helper.
*A debt write off amount of between 25% and 75% is realistic, however, the debt write off amount for each customer differs depending on their individual financial circumstances and is subject to the approval of their creditors. The example provided has been achieved by 10% of our IVA customers in the last 12 months.
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This website is in no way approved by the Government. The product (IVA) we administer through the group and process with our Insolvency Practitioners is covered under the following legislation: The Insolvency Act of 1986 (amended by the Insolvency Act 2000 and the Enterprise Act 2002) introduced a new procedure whereby a debtor could come to an arrangement with their creditors to pay their debts in full or in part over time as an alternative to bankruptcy. Our advisors will go through all your debt options including IVA (Individual Voluntary Arrangement) opportunities which are available for people living in England, Wales and Northern Ireland. Help can only be offered following an initial fact-finding process. An Individual Voluntary Arrangement (‘IVA’) is subject to the customer meeting qualifying criteria and gaining creditor acceptance. Initial advice is free and there is no obligation to proceed into an arrangement. Arrangement fees will be clearly explained to you in writing by your advisor.
