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Handing back the keys

This content applies to England only.

Housing laws vary between England and Scotland. This page applies to England only. Get advice relating to Scotland

If you can't pay your mortgage, you may want to leave and give your keys to your lender (voluntary repossession). Your lender may suggest this if you are unlikely to be able to pay off what you owe. However, it's not advisable to do this without getting independent advice first. If you do hand over the keys, your debt will probably increase and it will be more difficult to get a mortgage in the future.

There may be a better option. You should only hand over your keys as a last resort. There is usually an alternative, so get advice before you decide to do so. If you have already agreed to give your keys to your lender, it may not be too late. Contact a local advice centre immediately - use our directory to find one.

Will I still have to pay my mortgage?

Handing back your keys probably won't make paying your mortgage any easier and you will have to pay for somewhere else to live. Giving back the keys doesn't mean that you no longer have a mortgage. You will continue to be responsible for your mortgage until your lender sells your home, even though you are no longer living there. This will include:

the capital you originally borrowed plus interest
buildings insurance
any arrears that you have
penalty charges for missed payments
your endowment policy or ISA (if you have an interest only mortgage)

It may take a long time for your lender to sell your home, so the amount you owe is likely to increase considerably.

Will my home be sold for its full value?

Your lender is unlikely to get as high a price for your home as you would if you sold it privately. This is because many lenders sell repossessed properties at auction. However, if your lender sells your home for much less than it is worth, you may be able to take legal action. Get advice if you are worried that this is likely to happen.

If your home is sold for less than the amount you owe, you will still have to repay the full amount that you owe. If you had to take out a mortgage indemnity guarantee, this may pay off the difference but your lender (or insurer) can take legal action to force you to pay it back, even after the property is sold.

Will I have to pay any costs?

You normally have to repay any money your lender spends on selling your home, provided the cost is reasonable. It can be expensive and usually includes auctioneers' or estate agents fees and bills for any repairs that are needed.

You may have to pay capital gains tax (a percentage of the profit) when the sale is completed if:

the value of the property has increased since you bought it, and
it is not your main home (for example, if it has been rented to tenants)

Capital gains tax is only payable on any profit that is left over after your mortgage and any improvements you have made have been taken into account.

If you are on income support or income-based jobseekers allowance, any money you get from the sale after your mortgage has been paid off may be counted as capital, and your benefits may be reduced or stopped. It is important to inform the Benefits Agency, because if you don't, you will probably have to pay back any benefits that you weren't entitled to.

How can I find somewhere else to live?

If you decide to sell your home, you need to find alternative accommodation that you can afford. This could be through:

Although permanent housing association or council accommodation may also be an option, most areas have very long waiting lists, so you will probably need to look at other options in the short term. Buying another property may be difficult, as many lenders will not give mortgages to people who have lost their homes because of payment problems. Those that do, usually charge high interest rates.

Some council may decide that you are intentionally homeless if you lost your home because you didn't pay your mortgage. If you think you will need to apply to the council for help, get advice before hanging over the keys. The law on when a council can decide that you are intentionally homeless is very complicated. The decision will depend on your particular circumstances, not just the fact that you gave up your keys. For example, if your problems were caused because you lost your job, split up with your partner or became ill, an adviser may be able to help you convince the council that you did everything you could to keep your home. Use our directory to find a local agency that can explain your housing options.