How Long a Lender Can Chase a Mortgage Shortfall

If your home was repossessed or sold for less than the mortgage and any secured loans secured on it, the money still owed is called a mortgage shortfall¹. The lender can ask you to pay it back, and it can go to court to recover it. How long it has to do that depends on two things: whether the debt is the capital you borrowed or the interest added on top, and where in the UK you live.

In England and Wales, the limitation period for a mortgage shortfall is 12 years for the capital owed and six years for the interest part². In Scotland there are different legal views about whether a lender has 5 or 20 years to take court action to recover a shortfall³. The clock does not simply run from the day of the sale: it usually starts when the lender becomes entitled to be repaid in full, which under most mortgages is after two or three missed payments¹.

That matters because a shortfall can surface years later, when a lender or a debt collector writes demanding payment. Knowing which limit applies, and what restarts the clock, is what decides whether the debt can still be enforced.

What a mortgage shortfall is and why a lender can chase it

A mortgage shortfall is the money you still owe to your mortgage or secured loan lender when the amount your home is sold for is not enough to pay the outstanding mortgage and any secured loans¹. If the property is sold, either by you or by the lender after taking possession, the negative equity becomes a debt you owe⁶. The shortfall debt may include the monthly instalments and interest added while your property is being sold⁶.

The lender is entitled to be repaid in full under the terms of the mortgage, and the cause of action, meaning when the limitation period starts running, is usually when that entitlement arises. Under most mortgages that is after two or three missed payments¹. So the clock on a shortfall often starts well before the property is actually sold, which is why the dates matter so much if a demand arrives years later.

There are grounds to dispute a shortfall if the lender significantly undervalued your home when selling it, did not properly advertise it before selling, or blocked you from selling it yourself and then sold it for less than you were offered⁷. There is also a deadline on that kind of claim: you have six years from the date of sale to make a claim against the lender disputing the sale price².

Time limits: 12 years for capital, 5 years for interest

The Limitation Act 1980 sets the periods a lender has to use court action to make a borrower pay a mortgage shortfall. For the capital owed, the limitation period is twelve years in England and Wales¹. For the interest part of the shortfall, the period is five years⁷. One source describes the interest rule as the lender having 5 years to recover any interest that was added to the capital amount⁷. The clock starts running from the beginning again if the borrower writes to the lender admitting or agreeing that the debt is owed³. In Scotland, the Prescription and Limitation Act 1973 gives the lender 20 years to use court action to recover the capital part of a mortgage shortfall debt⁴.

The Limitation Act says that the limitation period for mortgage shortfalls is 12 years for capital owed, and six years for the interest part of the shortfall². For the capital part, the lender has 12 years to use court action to make you pay, under section 20 of the Limitation Act 1980⁴. For the interest part, the lender has six years to use court action to make you pay, under section 9 of the same Act⁸.

The two periods run separately, and that has a practical consequence. Payments toward interest do not extend the time period for the creditor to claim any other interest that is owed. They are treated as payments toward the capital part of the debt, which causes the 12-year time limit to start running again from the beginning⁴.

The time limit, either 6 or 12 years depending on whether it is capital or interest, will start running from the beginning again if you write to the lender admitting or agreeing that you owe the debt⁴. That is why it is worth taking advice before replying to a letter about a shortfall, rather than writing back straight away.

Where the 12-year limit applies: England and Wales, not Scotland

The 12-year and six-year limits are the position in England and Wales². In Northern Ireland, the interest part of a mortgage shortfall is statute barred after six years, and the capital balance can be statute barred but only after 12 years from the first default notice⁹.

The twelve-year period for the capital part of a mortgage shortfall applies in England and Wales¹⁰. Letters asking a lender not to pursue a shortfall are relevant in England, Wales and Scotland, but the letter for a shortfall where time has run out is relevant in England and Wales only¹¹. In Scotland the position is different: for the interest part of a shortfall debt, the lender has five years to use court action to make you pay, and for the capital part, the lender has 20 years¹⁰. One source puts it as: only the interest is prescribed after five years, but any action can be taken to collect money borrowed for 20 years⁹. The minimal asset process (MAP) bankruptcy is available in Scotland only, not in England, Wales or Northern Ireland¹³.

There is a separate rule about telling you. The FCA's MCOB rules say that the lender must tell you within five years of the date of the sale if it plans to recover the shortfall³. One source states this as six years from the date of sale¹¹.

Why do some sources say a lender has 20 years to recover a shortfall?

The 20-year figure is real, but it is not the England and Wales limit for court action on the capital. It comes from two places. First, Scotland: there are different legal views about whether a lender has 5 or 20 years to take court action to recover a mortgage shortfall there³, and one source states plainly that a lender has 20 years to recover the capital amount owed¹².

Second, some general guidance uses a looser phrase. One source says mortgage lenders may try to recover a mortgage shortfall for up to 20 years¹³, while another from the same publisher says mortgage lenders may try to recover a mortgage shortfall for up to 12 years¹⁴. Those two statements sit side by side in the same body of guidance, which is a good illustration of why the figure a reader sees depends on which page they land on.

What is consistent across the England and Wales guidance is the split between capital and interest: mortgage lenders have 12 years to try to recover a mortgage shortfall from you through the courts, and six years to recover interest owing¹⁵. The recovery period on shortfalls through the courts is twelve years¹⁶. If a letter quotes 20 years and you live in England or Wales, it is worth checking which part of the debt and which nation the letter is actually about.

Dealing with a shortfall debt: payments, plans and other options

If a shortfall is still within its time limit, there are several ways to deal with it. The options set out in guidance are a lump sum payment as a full and final settlement, paying off the debt in instalments over an agreed period, asking your lender to write off all or part of your debt, or bankruptcy⁷. Which of these is realistic depends on your income, your other debts and whether the lender will agree.

If you are still in the property and struggling, lenders have a range of possible arrangements, depending on your payment history and whether your difficulties are long or short term: reducing your payments for a set period, charging interest only for a while on a repayment mortgage, giving a payment holiday, or extending the mortgage term to reduce payments⁵.

Joint debts need particular care. If you have a joint mortgage shortfall debt and the other borrower has made a payment towards the debt, the limitation period starts running again from the beginning for both of you, from the date of that payment¹⁰. One borrower's action can therefore reset the clock for the other.

On formal solutions, a debt management plan cannot include mortgage arrears, along with magistrate or High Court fines, money owed under a criminal confiscation order, Student Loans, Child Support Agency or Child Maintenance Service arrears, budgeting loans, social fund loans or crisis loans, and any debt arising from a personal injury claim against you¹⁷. Whether a shortfall itself can go into a plan or an IVA depends on the solution and your circumstances, so it is worth checking which debts are priority debts and how the formal solutions compare before deciding.

There are sample letters you can use. One is for disputing liability if your lender has not contacted you for over 12 years and you have not made a payment or written acknowledgment during that period¹⁸. Another is for asking your mortgage lender not to pursue the shortfall where your house was sold more than six years ago and you were first contacted by the lender after 11 February 2000¹⁹. A third disputes liability for a shortfall²⁰. These letters are relevant in England, Wales and Scotland²¹.

Free help with a mortgage shortfall: National Debtline

National Debtline gives free advice to help you deal with your situation¹⁹. Its service is about helping and supporting you to deal with your debts yourself²². There are limits to what it can do: it cannot help if you do not have debt, cannot speak to the people you owe money to for you, does not give face-to-face advice, does not give money to pay your debts, and cannot give written information in your language²³.

You can call for free debt advice on 0808 808 4000²⁴. Opening times are 9am to 8pm, Monday to Friday, and 9:30am to 1pm on Saturday²⁵. You can also call that number for free advice on free debt management plans or on negotiating reduced payments yourself²⁶.

Contact National Debtline straightaway if an urgent situation applies in the next five working days²⁷. If you are in Scotland, there is a separate guide for emergency situations²⁸. If you would rather start by getting your paperwork together, there is guidance on getting ready for advice²⁷.

If you are in Scotland, the Minimal Asset Process is a bankruptcy route for people living in Scotland only, and is not available in England, Wales or Northern Ireland. For a wider view of where to get help, see free debt advice.