Voluntary surrender

If you can't pay your mortgage, you may want to leave and give your keys to your lender. This is called voluntary surrender. Your lender may suggest this if you are unlikely to be able to pay off what you owe, but it should only ever be a last resort.

When should I consider voluntary surrender?

Voluntary surrender may be an option for you if:

  • you have large mortgage arrears and have been unable to negotiate a payment arrangement with your lender, and
  • you've been trying to sell your home but cannot find a buyer, and
  • you can't get help from the Scottish Government's mortgage to rent scheme.

In this case, voluntary surrender could help you avoid building up further arrears and save you the costs and stress of going to court. 

What's the procedure for voluntary surrender?

Normally in all situations your lender will have to take you to court before they can repossess and sell your home. However, if after being sent a calling up notice or a notice of default you decide that voluntary surrender is your best option then you will have to confirm in writing that:

  • you no longer live in property
  • that the property is empty
  • you agree to the voluntary surrender
  • that this agreement is given freely.

You must also get written consent from your husband, wife, civil partner or partner agreeing to the voluntary surrender. 

Will I still have to pay my mortgage?

Even if you hand back your keys, you will still have to pay your mortgage until your lender sells your home. You may also have to pay for somewhere else to live.

The money your lender gets from selling your home will have to cover:

  • the capital you originally borrowed, plus interest
  • buildings insurance (remember, your policy may be invalid if the property is empty, in which case you'll need to take out a new policy)
  • any arrears that you have
  • penalty charges for missed payments
  • your endowment policy or ISA (if you have an interest only mortgage)
  • council tax for at least six weeks.

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. When lenders sell repossessed properties they often accept a low offer to sell quickly or sell the property at auction.

What if my home is sold for less than the amount I owe?

If your home is sold for less than the amount you owe, you will still have to repay whatever remains of your mortgage debts. If you took out a mortgage indemnity guarantee, this may pay off the difference, but the 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. This can be expensive and usually includes auctioneers' or estate agents' fees and bills for any essential 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.

Will the sale affect my benefits?

If you are on income support or income based jobseeker's 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's important you inform the local JobcentrePlus, disability benefits centre, Pension Service and your local council, depending on what benefits you are entitled to, if you receive money from the sale of the house. If you don't, you may be paid benefits that you are not entitled to and have to pay them back.

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.

The important points

  • Voluntary surrender is when you give your keys to your lender because you can't pay your mortgage, it should be a last resort
  • You are still responsible for mortgage payments, costs of selling it and essential repairs until the property is sold.
  • It is likely that your house will not sell for as much if the lender sells it as if you sold it privately.
  • If the property sells for less than what you owe on your mortgage you are still responsible for repaying the full amount.

Speak to a Shelter Scotland adviser

Call Shelter Scotland's free housing advice helpline

0808 800 4444
9am-5pm, Monday to Friday

Email an adviser

You can also email a housing adviser. We aim to respond within three working days.

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