Voluntary repossession and handing back the keys

If you can't pay your mortgage, you may decide to leave and give your keys to your lender. This is called voluntary repossession.

Get advice before deciding on voluntary repossession

Leaving your home and giving your keys back to your lender is called voluntary repossession.

You should only do this as a last resort. If you give back your keys, your debt will increase until the property is sold.

Get independent advice first before agreeing to voluntary repossession. There may be an alternative or a better option.

Even if you have already agreed to give your keys to your lender, it may not be too late to deal with your mortgage problems.

Use Shelter's directory to find a housing adviser

Asking the council for help

Get advice before handing back your keys if you think you'll need to apply to the council for help because you will be homeless.

Your local council could decide that you are intentionally homeless if you lost your home because you didn't pay your mortgage.

The council's decision depends on your particular circumstances, not just the fact that you handed back the keys.

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.

Get advice if you disagree with the council's decision.

Use Shelter's directory to find a housing adviser

Paying your mortgage

You continue to be responsible for paying your mortgage until your lender sells your home, even though you are no longer living there.

You are responsible for:

  • the money 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. The amount you owe could increase.

Selling the property

Lenders usually sell repossessed properties quickly to try to get back what they're owed. Your lender is likely to get less for your home than you would if you sold it yourself.

If your home is sold for less than the amount you owe, you still have to repay the shortfall.

If you took out mortgage indemnity insurance when you arranged your mortgage, the insurance protects the lender not you. If the insurance company makes a payout to the lender to cover a shortfall after the sale of your property, they'll usually ask you to repay them.

You may be able to take legal action if your lender sells your home for much less than it is worth. Get advice if you are worried that this is likely to happen.

Use Shelter's directory to find a housing adviser

Lender's costs

You usually have to repay any money your lender spends on selling your home, provided the cost is reasonable.

This could include fees from auctioneers or estate agents and bills for any repairs that are needed.

Claiming benefits after your home is sold

If you claim universal credit, income support or jobseeker's allowance, any money you get from the sale after your mortgage has been paid off may be counted as capital. Any benefits you receive could be reduced or stopped.

Tell Jobcentre Plus about money from the sale of your home. If you don't, you will probably have to pay back any benefits you weren't entitled to.

Find out more about benefits from Gov.uk.

Capital gains tax

If the property sold was not your main home, for example because it had been rented out to tenants, you may have to pay capital gains tax after the sale is completed. This could happen if the value of the property has increased since you bought it.

Find out more about capital gains tax from Gov.uk.

Finding somewhere to live

You need to find alternative accommodation that you can afford.

Find out more about finding a home after repossession.

You may be able to claim housing benefit to help pay your rent.


Last updated 31 Dec 2016 | © Shelter

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