Is my house at risk because of debt?

julia kukiewicz
By Julia Kukiewicz

house forced sale

I'm in debt: can my creditors threaten my home?

In some circumstances, yes, they can.

Most obviously, failing to make repayments on any kind of loan which is explicitly tied to the home - a mortgage, for example - can allow the lender to take the property.

More surprisingly, unsecured debts - credit cards, personal loans or payday loans - can also end up threatening your home through a piece of legislation called a charging order.

In both cases, there are rigid rules and procedures governing whether and how lenders can take property. Read on to take a closer look.

Secured debt: home-linked loans

A secured loan offers borrowing in return for collateral: usually a home, but maybe a car or some other asset.

These lending agreements make clear that if payments are not made the borrower has the right to repossess the property.

If a number of loans are secured on the same property and the property is repossessed the money from the sale will be shared out among the lenders, from the oldest loan to the newest.

Road to repossession

However, lenders can't just repossess because the borrower has debts.

The loan needs to be seriously in arrears and the lender needs to consider all reasonable requests from the borrower that could allow them to repay.

That could mean changing the date of repayment (within reason), the payment method or even the nature of the loan, for example, extending the length of a mortgage.

If the borrower is in, or is waiting to enter, a debt relief scheme, lenders will need to take that into account too.

Mortgage help

Anyone struggling to meet loan payments can benefit from independent help with their debts. See our guide to the free help available here.

There are also many schemes set up specifically to help those struggling to meet their mortgage payments and, if possible, help them to keep their home.

For example, the Government's Mortgage Rescue Scheme puts struggling borrowers in touch with a Registered Social Landlord (RSL) organisation that will either lend additional money to meet the commitment or buy the home and rent it back more cheaply.

Find out more about the scheme here.

There is also help for those struggling with their mortgages who are also on some benefits.

The scheme is called Support for Mortgage Interest (SMI) and its available to those on benefits including Income Support and Jobseeker's Allowance.

Unsecured debt: charging orders

As we noted above, however, it isn't just those with outstanding secured debts that are risking their homes.

Those in arrears on debts above £1,000 can be subject to Charging Orders.

How they work

The first thing you need to know is that Charging Orders can only apply to those who have a county court judgement (CCJ) against them.

However, those that have or are at risk of a CCJ sit up and take note: a Charging Order can be applied to the debt at the same time as the CCJ or after even if the debtor hasn't missed any of their repayment instalments.

The 'charge' is placed on the debtor's property by the judge, they can technically be requested and not granted but they make it through this stage in about 85% of cases.

As a result, the lender has a right to take any money made through the sale of the property as repayments.

The lender can't actually force the borrower to sell their home with the order, it just makes them first, or second if the home has a mortgage, in line to get money if it is sold.

But the lender can get another order - an 'order for sale' - to force the property sale.

This is very rare mostly because it's not in the lender's interest to force sale when there's a not a lot of equity in the house.

In areas where property values are rising, then, forcing sale may be more attractive to the lender.

According to Credit Action, 1,373 CCJs are issued every day in the UK.

860,000 Charging Orders have been granted since 2008 so clearly this is a problem affecting only a minority of those with CCJs, though not an insignificant one.

Charging Orders and HMRC

Finally, note that Charging Orders can be discharged in pursuit of one type of debt you might not have thought of: tax bills.

In March of this year, somewhere in the small print of the budget, HM Revenue & Customs (HMRC) announced that they plan to use the orders more to chase people with outstanding tax bills.

Responsible lending and threat to property

By literally threatening the roof over borrowers heads lenders open themselves up to charges that they are lending irresponsibly.

There are two criticisms here: first, that such orders show lenders lending to people who shouldn't have been granted borrowing; second, that lenders are pursuing all debts too aggressively.

In November 2010, for example, the Office of Fair Trading (OFT) warned several big lenders including American Express that they were pursing debts, including charging orders too vigorously.

"Where we consider the use of charging orders to be unfair or oppressive we will take action to protect consumers," the OFT said.

Another concern are debt management companies that can, through mismanagement of debts in their care, prevent consumers from paying debts that could lose them their homes.

The OFT has warned mismanaged debt firms too.


19 December 2015

I owe a creditor $10000 and I have $11000 of equity in my home, can the creditor put a lien on my house? I co-signed for my daughters car and it got repossessed.