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Giving your keys to your lender

This content applies to Scotland only.

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

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

Voluntary respossession 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 repossession could help you avoid building up further arrears and save you the costs and stress of going to court.

Hosever, you should only hand over your keys as a last resort. If you do hand over the keys, your debt may well increase and it will be more difficult to get a mortgage in the future. If you have already agreed to give your keys to your lender, it may not be too late to find another option. Contact an adviser at a housing aid centre, Citizens Advice Bureau or debt agency, as they may be able to help you find a better course of action. Use the Advice Services Directory to find help near you.

What's the procedure for voluntary repossession?

If you've built up mortgage arrears and your lender has decided to take steps to repossess your home, there are three things they can do:

send you a notice of default
send you a Section 24 notice and initial writ
send you a calling up notice.

The section on repossession procedures explains these in more detail.

If your lender sends you a notice of default or Section 24 notice, they will have to take you to court before they can repossess and sell your home. However, if they send you a calling up notice asking you to repay your entire loan and you are unable to do sowithin two months, your lender has the right to repossess your home without going to court.

Therefore, if you decide that handing in the keys to avoid court action is your best option, you should ask your lender to send you a calling up notice. You can also ask to shorten the notice period of the calling up notice to a month, to avoid building up more arrears. However, you must get written consent from your husband, wife, civil partner or partner if you want to do this.

Bear in mind that your lender may be reluctant to do this. They may think that you are asking for a calling up notice in order to delay the repossession, and have no intention of handing in the keys, or will challenge the notice on a technicality. Or they may not have the necessary administrative procedures in place.

Talk to a housing adviser or a solicitor before taking any action, as you need to be sure this is the right course of action for you. Use the Advice Services Directory to find help near you.

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 your remaining 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 Department for Work and Pensions (DWP) if you receive money from the sale of the house, because if you don't, you may be paid benefits that you are not entitled to and have to pay them back.