Should I hand back the keys to my lender?

Handing back the keys does not end your mortgage debt. If you give the keys to your lender, you stay legally responsible for the debt, and the lender may sell the property at a lower price than you would have got¹. If the sale does not raise enough to clear the mortgage, you still owe the outstanding amount².

That is the short answer, and it is the one most people are not told before they post the keys through the branch door. The lender sells the home, takes what it is owed, and passes back anything left over³. You cannot move back in once the keys are returned⁴. Your details stay on credit reference agency files for six years⁵.

The alternative is to sell the home yourself, which usually gets a better price, but you need your lender's agreement if the sale will not cover what you owe⁶. Before any of that, lenders signed up to the Mortgage Charter have committed not to force a borrower out of their home without consent, unless there are exceptional circumstances, in less than a year from the first missed payment⁷.

Handing back the keys does not end your mortgage debt

The single most important thing to understand is that the mortgage is a contract, and returning the property does not cancel it. Independent guidance is blunt about this: do not just hand back the keys to your lender, because you will still be legally responsible for the debt and they may sell the property at a lower price¹. If you voluntarily hand over the keys, you may still owe money⁸.

Where the sale proceeds do not cover the mortgage debts, you still owe the outstanding amount to your lender². The same applies if you sell the home yourself: you will still owe money to your mortgage lender if selling does not pay off the full amount you owe⁹. In negative equity, you still owe money to your mortgage lender after you sell¹⁰.

There is a strict order to how sale money is used. If selling your home does not raise enough to repay the first mortgage, and any other mortgages, plus all the costs, you may still owe money to the lender⁵. If you have other debts secured on the home, such as a second mortgage, those creditors may be entitled to a share of the proceeds, but the debt to the mortgage lender is paid first⁶.

One narrow exception is worth knowing. If you had to take out a mortgage indemnity guarantee when you bought the property, your lender can claim any shortfall from the insurance company, but you will still be responsible for the debt¹¹. The guarantee protects the lender, not you.

What happens after your lender takes the property back

Once you hand back the keys, your lender sells the property for you and you get back any money made from the sale³. When the sale goes through, your lender and any other secured creditors get their money back, and you get any money left over⁸. In practice, if there is a shortfall, there is nothing left over.

The costs do not stop at the point you leave. After you have been evicted, your lender will still add interest to your mortgage account until the property is sold⁵. You will usually still be responsible for things like maintenance, insurance and council tax until your lender takes ownership of your home and changes the locks¹². Your lender must take care of the property until it is sold, must deal with emergency or essential repairs, and may charge you for this¹³.

If you are in Scotland, the position on timing differs slightly. You have the right to appeal to your lender asking them to give you time to get another home, and usually they will give you 14 to 28 days¹⁴.

You cannot move back in once the keys are returned

This is a hard line, and it catches people out. You cannot go back to live in your home once you give the keys to the lender⁴. There is no cooling-off period and no right to change your mind.

The lender cannot simply change the locks, though. A mortgage lender has to repossess your home and evict you before they can sell it¹³. They cannot make you leave without going through a legal process, and you do not have to leave the home straight away¹². Your lender can send bailiffs to evict you only if you have not left by the date set in an outright possession order, or you have broken the terms of a suspended possession order⁹.

If you feel rushed or intimidated by a lender to leave your home, this might be illegal, and they must have a legal reason to take away your home⁸. Repossession should be the last option that your lender considers, and they have to be fair and reasonable to their borrowers¹.

There is a practical point about timing. If you are thinking about taking in a lodger to help with payments, most mortgage agreements allow a lodger as long as you live in the property, but the lender's consent is normally required first¹⁵. Leaseholders may also need permission from the freeholder¹⁵. Many lenders refuse to give consent where there are mortgage arrears¹⁶.

Is handing back the keys the same as voluntary repossession?

In effect, yes. Handing back the keys is often called voluntary surrender, and it means handing the keys to your lender if they cannot help you sell your home³. The end result is the same as repossession: the lender takes the property and sells it.

The difference is procedural. With voluntary surrender, you are cooperating rather than being taken to court. But the lender still has to follow the legal process before it can sell, and it must follow FCA rules and sell your home for the best price that might reasonably be paid, taking into account things like house market conditions⁵.

Before any of this, a lender should give you the chance to sell your home to pay off the debt, and you must be able to show that you are taking active steps to sell⁸. Repossession should be the last option considered, and lenders have to be fair and reasonable and follow a mortgage pre-action protocol¹.

If you are in Scotland, the sale process has its own rules. A lender must follow FCA rules and sell your home for the best price that might reasonably be paid, taking into account factors such as market conditions¹⁴.

Selling yourself or handing back the keys: how each one works

The two routes look similar on paper and are very different in outcome. The core difference is price: you will get a better price by selling it than by handing it to your lender to sell³.

If you sell yourself, the mortgage and any arrears continue to be payable until the property is sold¹¹. Your lender's agreement is needed if the sale price is less than what is needed to pay off the mortgage, because they can stop a sale going through if the sale price will not cover the outstanding mortgage⁶. If the home has been used as collateral for any other secured loans, permission from the lender who provided them may also be needed¹¹.

Some lenders will actively help. Ask your lender if they can give you support to sell your home, sometimes called an assisted voluntary sale⁹. Some lenders agree to pay your selling fees, pause court action to give you time to sell, lower your mortgage payments, or give you a deposit and rent in advance to rent a home¹¹. Your lender may also agree to smaller mortgage payments until you sell your property³.

If you do hand the keys back, the mechanics are simple. You can do this by handing in the keys at a branch, or posting them by special delivery, making sure you only include your mortgage account number and not the address³.

Help before you leave: the Mortgage Charter and your lender's duties

If you are having problems with your mortgage, you could get help from your lender if they have signed up to the Mortgage Charter¹⁷. The Charter sets out the standards lenders will adopt when helping their customers, and signatories will provide borrowers with additional flexibilities to manage their mortgage payments over a short period⁷.

The most important commitment for anyone in arrears is the protection from being forced out. Lenders signed up to the Charter have committed not to force a borrower to leave their home without their consent, unless in exceptional circumstances, in less than a year from their first missed payment⁷. That protection took effect on 26 June 2023.

There is also a rule about switching deals. Borrowers are able to manage their new deal and request a better like for like deal with their lender right up until their new term starts, if one is available¹⁰. To access this, your lender needs to have signed up to the Mortgage Charter¹⁸.

Separately from the Charter, lenders have conduct duties. FCA rules say that a lender must deal fairly with anyone in arrears, and must give consideration to the customer being allowed to remain in possession to effect a sale⁵. If you are behind with your mortgage payments, the lender may arrange a forbearance agreement with you, which allows you to repay any missed payments¹⁹.

On fees, the Financial Ombudsman's guidance to lenders says that arrears fees are usually waived during this time, as long as the customer keeps to any reduced payment arrangement²⁰. That applies where a customer is ill, out of work or selling the house.

Why might a lender sell my home for less than I could?

A lender selling a repossessed home is not in the business of getting you the best possible price, even though it has a duty to try. Your lender must sell your home for the best price they can reasonably get¹³. They must follow FCA rules and sell your home for the best price that might reasonably be paid, taking into account things like house market conditions⁵.

Even so, there are recognised grounds to challenge a shortfall. You can dispute the shortfall if your lender significantly undervalued your home when selling it, did not properly advertise your home before selling it, or blocked you from selling it yourself and then sold it for less than you were offered¹².

That last point matters. If you had a buyer and the lender refused to allow the sale, then sold for less, that is a specific complaint you can make. The Financial Ombudsman Service handles complaints about mortgage shortfalls, and the debt may be held by your former lender, by someone acting on their behalf, or by a debt collection company that has bought the debt from the lender²¹.

If you want to sell in negative equity, you will need permission from your lender if your house is worth less than the amount left to pay¹. If the money from the sale is not likely to pay off your mortgage, you normally need your lender's permission to sell your home¹¹. You may need your lender's agreement if you have negative equity¹¹.

Will handing back the keys affect my credit file?

Yes, and for a long time. Your details will be on credit reference agency files for six years⁵. A voluntary surrender will impact your credit score, making things a bit tougher for you in the future²².

The six-year period runs from the point the keys are handed in and the lender sells the home⁵. During that time, lenders will see the record when you apply for credit, which can affect whether you are accepted and on what terms.

There is a knock-on effect for anyone financially linked to you. If you have a joint account or a joint mortgage, the lender can have full access to your credit file in the same way it could if it were you applying for credit²³. That means a partner or former partner can be affected by your arrears and the sale.

If you are separating from a partner, the position is more complicated. Even if both of you agree, or a court orders one person to take over the mortgage, the lender is not obliged to release the other person from it, and can refuse based on its own affordability criteria²⁴. So a joint mortgage can keep both names on the hook long after the relationship ends.

Where to get free help with mortgage arrears

Free, impartial help exists, and using it does not cost you anything. When faced with repossession, contact your solicitor or a free advice agency²⁵. Before the court date, contact the lender directly or through an advice worker or your solicitor to make a proposal to pay the mortgage instalments and pay off the arrears within a reasonable time, and let them know if you have put the house up for sale or plan to do so shortly²⁵.

If you do end up in court, preparation matters. Bring all relevant documents, including all letters from the lender, notes of telephone calls or meetings with the lender, a completed budget form, proof of your salary or benefits, a letter from the estate agent if selling, a letter from the new lender if you have applied for a re-mortgage, proof of a change of circumstances such as a job offer, and proof of money due to you such as backdated benefit or compensation or copies of unpaid invoices²⁵. At the hearing, you or your solicitor, barrister or advice worker should be able to provide an explanation about why you are behind in your mortgage payments, details of your financial and other relevant circumstances, and your best realistic proposal to sort out the situation²⁵.

If you are on a low income, there may be state support. The Support for Mortgage Interest (SMI) loan is one option, and if you do not sell or transfer the property, you do not have to pay back the loan²⁶. If you leave your home to your partner who you live with, they will usually be able to inherit the loan with your home²⁷.

If you are in Scotland, the Home Owners' Support Fund is a separate route, and the lender can take your asset and sell it if you cannot repay your loan²⁸. In Northern Ireland, the Help to Buy mortgage guarantee scheme provides that if you are behind with your mortgage payments, the lender may arrange a forbearance agreement with you¹⁹.

Free advice is available from Citizens Advice, StepChange, National Debtline, Shelter and MoneyHelper. If you are considering a sale and rent back arrangement, be aware that these allow you to sell your home to a private firm or individual, typically at a reduced price, and continue living in your home by renting it as a tenant²⁹. If you are in Northern Ireland, firms should not prevent tenants from ending the tenancy on less than the agreed notice period in the first six months of the tenancy³⁰.