Getting out of arrears

Banks only repossess homes as a last resort as the process is expensive. They prefer to come to an arrangement with the borrower. This might involve switching to an interest only mortgage, extending the term of the mortgage, or reducing the interest rate payable for an agreed time.

Whatever you do, your mortgage lender will want you to pay off your arrears as soon as possible. You might be able to do this by discussing your financial situation with a debt advisor. Charities such as Credit Action or the Consumer Credit Counselling Service offer free and impartial advice.

If your income doesn't stretch to making extra payments there are several ways you might be able to increase it, for example:

• Benefits and tax credits
• Claiming on a payment protection policy
• Getting a lodger - remember you can earn up to £4250 in rent a year tax-free

Talk to your lender

If you fall into arrears it's important you keep communicating with your lender. Work out how much you can afford to pay each month and make it an offer - a debt advisor can help you do this.

Whether or not the lender accepts your offer, keep making regular payments - even if you can't afford much. If you don't, or don't pay enough, the lender may take you to court. They will write and tell you if they intend to do this.

If a court date is set, make sure you turn up and get expert advice. In some cases, the judge may allow you to stay in your property as long as you keep to an agreement to pay. The judge will take into account whether the mortgage lender followed the rules when they took you to court and whether you've continued to make payments on the mortgage.

Simon's mortgage lender asked him what he could afford and agreed he could pay £200 a month until he got a new job. "I'm working again now and can afford my payments. However, I'm still about £1200 in arrears. I'm paying a bit of this off each month."

Mortgage support schemes

Having your home repossessed is in nobody's interest, which is why - since the recession - the Government has introduced a number of schemes to help people who are struggling to keep their home.

The Mortgage Rescue Scheme, for example, is available to some households so long as they earn under £60,000 a year. Other criteria are that you don't own a second home and the outstanding mortgage is less than 120% of the property value.

The Homeowner's Mortgage Support Scheme is an alternative, but one that applies if your drop in income is temporary. The lender will simply require that you pay as much as you can each month - though this will need to be at least 30% of interest repayments.

What happens if your house is repossessed?

If all else fails and you're unable to meet your mortgage and pay off your arrears, the court will probably give the lender permission to evict you from your home. You'll normally have 28 days to move out, after which bailiffs will visit and remove you and your belongings.

The lender will then sell the property. If they don't make enough from the sale to cover the money you owe on your mortgage, you will have to pay the difference, known as the 'shortfall'.

When it comes to finding somewhere else to live renting will be your best option, as it's unlikely you'll be allowed to take out another mortgage. If you can't find somewhere to rent our section on homelessness can help.

Other options

If you can't pay off your arrears you might want to sell the property yourself, as you'll probably get a better price for it. You will need to use the money to pay off your mortgage.

So-called 'Sale and Rent Back schemes' are run by private companies who buy the property from you and then rent it back to you. Although this might seem like the perfect solution, it rarely is because these firms are unlikely to give you a fair price for your property. Once you're a tenant in the property you'll have few rights and might be evicted, anyway.

With thanks to the Citizens Advice Bureau for their help with this article.

Updated: 25/05/2010

Written by Emma Lunn