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Mortgage rescue schemes

This content applies to Scotland only.

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

Some councils, housing associations and lenders offer mortgage rescue schemes, which allow you to continue living in your home, as a tenant or part-tenant/part-owner, if you are unable to meet the full payments for your mortgage. Think carefully before signing up to a mortgage rescue scheme. Although some schemes are effective and could help you to keep your home, others may simply increase your debts.

These schemes are not suitable if your financial difficulties are likely to be temporary. In these situations, negotiating reduced payments with lenders for a few months is usually a better option and will cost you less in the long run.

How do mortgage rescue schemes work?

Mortgage rescue schemes (sometimes called 'sale and rent back' schemes) buy your home and rent the property back to you. This allows you to stay in your current home while making it more affordable.

Some schemes allow you to sell only part of your home, so that the property is owned on a shared ownership basis, while other schemes make it possible for you to buy your home back when your financial situation improves.

Who runs these schemes?

This is a very important question. Mortgage rescue schemes can be run by:

not for profit agencies (such as local councils or housing associations)
mortgage lenders, or
private, profit-making companies.

It is very important to check whether any scheme you are considering is a profit-making company, as this can be very risky (see below) and is usually best avoided. Unfortunately, there are very few not-for-profit schemes available, while the number of private sector schemes continues to grow rapidly.

What are the risks?

You may see have seen mortgage rescue schemes advertised on TV, in your local paper, or on leaflets put through your door. Some companies' advertisements sound too good to be true... and they usually are. Companies that offer an immediate, easy solution or target customers aggressively should usually be avoided. Be aware that:

Privately run schemes often purchase homes well below the market rate, so you could lose as much as 20% of the true value of your home.
Their advertisements are not scrutinized for inaccurate or misleading information, and there are no checks as to whether the advice they give you is in your best interests, or is the best way of resolving your problems.
Many schemes give short assured tenancy agreements to the former owners. This gives you very little protection from eviction once you have sold your home. They do not have to prove a reason to do this - as long as they follow the correct procedure the eviction will be legal.
At present, profit-making mortgage rescue schemes are not regulated. The Financial Services Authority (FSA) does not consider them to be offering a financial product, merely buying a property and renting it out. However, the government has announced that in the future, sale and rent back companies will be regulated by the FSA, giving you more protection.

What are the benefits?

The benefits may include:

struggling home owners get to stay in their homes, avoiding the trauma of repossession
any equity you have can be released to pay off debts (although mortgage debts should always be your top priority)
both you and your lender would avoid the costs of going to court and having your home repossessed.

Am I eligible?

Remember that just because you're eligible for a mortgage rescue scheme doesn't necessarily mean that it's your best option. Always get independent financial advice before you decide (see 'where can I get help and advice' below).

If the scheme is run by the local council or a housing association, there are usually rules on eligibility. For example, they may only be available to people who:

are facing a large reduction in income
have not yet built up high levels of mortgage arrears
need to stay in the area for other reasons, such as schools, work or support
are able to make small monthly payments.

Some schemes will only offer a service if there is a shortage of social housing in the area and the property value is below a certain amount. Ask you local council and/or your lender whether there are any schemes you can apply for.

How can I find a scheme?

It is worth asking your mortgage lender if they operate this sort of scheme.

Alternatively, contact your local council to find out if there is a not-for-profit mortgage rescue scheme operating in your area. You may be eligible to apply to the mortgage to rent scheme, which has more rigid criteria.

Remember, that schemes advertised in newspapers or on TV are usually profit-making companies and may not provide a real solution to your problem.

What should I do before I contact a scheme?

To avoid losing out financially, you should:

Continue to pay as much as you can, to avoid the build up of further arrears.
Get debt advice from an independent agency (see 'where can I get help and advice' below). Most private debt companies that advertise for customers should be avoided. Specialist debt advisers can make a full financial assessment and help you work out a plan for clearing your debts, and covering your living expenses.
Consider negotiating with your lender first - most lenders consider repossession to be a last resort and are willing to discuss other ways to make your mortgage more affordable.

If, after getting advice, you do decide to join a scheme, be sure to ask the following:

Can you maintain ownership of part of the property?
What type of tenancy would you have?
What protection from eviction would this give you?
What would the rent and other payments be?
Can you buy back stakes in the property gradually, as your financial circumstances improve?
Will you have to pay for all the legal and financial costs associated with selling your home to the scheme?

Will I be able to claim housing benefit?

If you sell your home but continue to live there and pay rent, you should be able to claim housing benefit, or local housing allowance if you use a private or profit making firm, provided you can show that you would not have been able to carry on living in your home if you hadn't sold it. If this is not the case, you will have to wait five years before you'll be able to claim housing benefit. If you need help claiming benefit, talk to an adviser at a housing aid centre, Citizens Advice Bureau or welfare rights agency - use the Advice Services Directory to find an agency near you.