Help with mortgage payments (Scotland)

This fact sheet tells you the different types of help you might be able to get with your mortgage. If you are behind with your mortgage, or think you might be soon, it is important to explore all these options.

Use this fact sheet to:

• find out about the different schemes and sources of help;

• work out if you might be eligible for help; and

• help you to apply.

What support is there?

You can apply for help with your mortgage from two main sources.

• The Home Owners’ Support Fund.

• Loan for Mortgage Interest (LMI), if you are getting certain benefits.

This fact sheet explains both of these. It also considers ‘sale and rent back’ schemes and companies offering quick home purchases.

You need to take legal advice before you decide to take part in one of these schemes. You need to make sure that you understand all the details before you sign up.

Household mortgage arrears

For more information about how to deal with mortgage arrears, see our detailed Household mortgage arrears fact sheet.

This fact sheet covers the following areas.

• Coming to an arrangement with your lender.

• What to do if you can't afford your mortgage.

• What if my home is worth less than the mortgage?

• Second mortgages or secured loans.

• What if my mortgage lender takes me to court?

The Mortgage Charter

Most UK mortgage lenders have signed up to the Mortgage Charter. If your lender has signed up to the charter, they should offer you a wide range of support if you are worried about meeting your mortgage payments because of increased interest rates, or are already struggling to make payments.

• For example, if you are up to date with your payments, your lender should allow you to switch to interest-only payments for six months, or extend your mortgage term to reduce your monthly payments. They should also give you the option to revert back to your original term within six months. You should not usually need an affordability check and this support should not affect your credit file.
• From 26 June 2023, you should not be forced to leave your home within 12 months of your first missed mortgage payment unless you agree to do so or there are exceptional circumstances.
• From 10 July 2023, you should be allowed to lock into a deal up to six months before your existing fixed-rate deal changes. You should also be able to manage your new deal and request a better like-for-like deal from your lender, if available, up until two weeks before your new term starts.

To check if you lender has signed up to the Mortgage Charter and to see the full range of support that is available under the charter, go to www.gov.uk and search for ‘Mortgage Charter’. If you are concerned that your lender is not following the charter, although they have signed up to it, contact us for advice.

Do you have a second mortgage?

It is unclear whether the Mortgage Charter applies to second charge mortgages. If you have a second mortgage and are worried about meeting your mortgage payments, contact your lender to ask what help is available and how it will affect your credit reference file.

FCA guidance

The Financial Conduct Authority (FCA) has also issued Guidance for firms supporting their existing mortgage borrowers impacted by the rising cost of living.

The guidance shows that lenders can offer a range of support options to help you avoid, reduce or manage payment difficulties caused by the rising cost of living. For example, support options could include temporarily reducing your interest rate, extending the term of your mortgage, allowing you to make interest only payments or agreeing a short-term reduction in your monthly repayments.

Contact your lender to see what support is available if you are finding it difficult to pay your mortgage or think that you are going to have difficulties in the near future. In many cases, your lender can offer you support without completing an affordability test.

Your credit rating will be affected if you no longer maintain your contractual mortgage payments. Your lender should also explain how any support options they offer you will affect your credit reference file.

If you are behind with your mortgage repayments, also see our Mortgage arrears fact sheet.

Home Owners’ Support Fund

The Home Owners’ Support Fund is the last resort when you own your own home and are in danger of having it repossessed because of financial difficulties. There are two kinds of help that it can give.

• The Mortgage to Rent scheme allows you to stay in your home, but as a tenant rather than a homeowner.

• The Mortgage to Shared Equity option also allows you to stay in your home, but the Scottish Government takes a financial stake in your home.

The Scottish Government has published a booklet about how the fund works called Are you in danger of losing your home? Contact us for a copy if you can't print it off.

Mortgage to Rent Scheme

If you join the Mortgage to Rent scheme, a local council or housing association will buy your home from you and any mortgage, mortgage arrears, or secured loans will be paid off.

You will become a Scottish secure tenant and will pay rent at the rate the landlord usually charges in your area. Make sure you know how much your rent is going to be before you agree to sell your home.

You may be able to claim Housing Benefit or Universal Credit housing costs element to help you to pay your rent. See the later section Help with rent.

Mortgage to Shared Equity Scheme

Under the Mortgage to Shared Equity scheme, the Scottish Government will take a stake or share in your home, but you will still be the owner. This means that your mortgage or secured loan payments will be smaller each month. Overall, your housing costs will be reduced to an amount that you can afford.

After two years, you can start to reduce the Scottish Government’s stake in your home. You can buy back as much of the equity as you can afford and as often as you like. You start the buying back process by writing to the Scottish Ministers, telling them that you wish to reduce their stake. In most cases, the Government will expect you to buy back all of your equity within 10 years. This option is intended to be a short-term financial solution, which allows you to improve your financial position and eventually become full owners again.

What is equity?

‘Equity’ is the profit that you would have left after paying your mortgage, if you sold your home. For example, if your home was worth £250,000 and your mortgage and secured loans added up to £120,000, you would have equity of £130,000.

Paying off the Government’s equity stake

The amount of money that you need to pay to buy back the Scottish Government’s stake could change over time. If the value of your home increases, you will have to pay a larger amount to buy back the stake. If the value decreases, you will pay a smaller amount. See the buying back the equity example later for more details of how this works.

During the Mortgage to Shared Equity scheme you will need to pay back:

• the money required to buy back the share of the equity stake;

• your own legal costs; and

• the legal costs charged by the Scottish Government for returning the share to you.

If you do not buy back the Scottish Government’s equity stake on time, they can charge interest on the amount owed, from the date it is due to be paid, up to when you pay it off. If the Scottish Government gets a court decree on the money owed, interest is payable before and after the court decree.

Buying back the equity example

In this example, you will buy back the Government’s stake in your house in two instalments several years apart.

First equity buy-back

Say your home is valued at £130,000 and the Scottish Government’s equity stake is 30%.

If you want to buy back half of the equity stake (15% of your equity) this will cost you 15% of £130,000, which will be £19,500.

Because you have now bought back a share of your home, your stake in the home will increase and the Scottish Government’s share will reduce. After this first buy back your stake will now be 85% and the Government’s stake will be 15%.

Second equity buy-back

If, a few years later, you want to buy back the rest of the equity owned by the Scottish Government, your home will have to be valued again before you will know how much this will cost you. If the value of your home has increased to say, £150,000, the Scottish Government’s equity stake will now be worth 15% of the new valuation of your house. This will be 15% of £150,000, which is £22,500.

In this example then, it will cost you £22,500 to buy back all the remaining equity owned by the Scottish Government.

Applying to the Home Owners’ Support Fund

To find out if you are able to join one of the Home Owners’ Support Fund schemes, look at:

• the general qualifying rules that apply to both schemes; and

• the special rules for the scheme that you want to use.

Common rules for joining both schemes

You may be able to join either scheme if:

• you have been unable to agree with your lender how to manage your arrears;

• you have received advice about your overall financial situation from a regulated money adviser;

• you have not made the full monthly payments on your mortgage or secured loan for at least three months;

• your arrears are least equal to one monthly payment in total;

• you are not be able to get help through another UK Government support scheme, such as Loan for Mortgage Interest (LMI), or may still lose your home even if you get this;

• your home is valued at no more than the maximum level set for its size and the area where you live (see maximum levels section below;

• this is your only home;

• your home is in a reasonable state of repair (see the later section Repairs);

• you want to keep living in the home and have lived there for the past 12 months; and

• you do not have more than £2,000 ‘capital’ if you are under 60 years of age, or £4,000 if you are 60 years of age or older. (For what is included in ‘capital’ see the What does 'capital' mean section).

Maximum levels:

Your regulated money adviser will be able to give you up-to-date information on what maximum levels apply to your home.

If you have particular housing needs because of a disability, you may be able to get help, even if the value of your home is above the maximum level.

What does ‘capital’ mean?

‘Capital’ can include things like:

• cash;

• savings;

• money in bank or building society accounts;

• premium bonds;

• stocks and shares;

• unit trusts;

• fixed term investments;

• endowment policy pay-outs, except in limited circumstances;

• redundancy payments;

• pension lump-sum payments; or

• equity in any other property you own.

If you are not sure whether you have other kinds of capital that could affect your application, contact us for advice.

Mortgage to Shared Equity extra rules

There are extra rules you must meet, if you want to join the Mortgage to Shared Equity scheme.

• You must have 20% or more equity in your home.

• You must have a capital and interest repayment mortgage (check this with your lender).

• You must not have a trust deed or be bankrupt.

• A creditor must not have got court order preventing you from selling your house (called an inhibition).

• Your home has to be fit to live in. This will be decided by an independent surveyor.

Repairs

If you are applying to join the Mortgage to Rent scheme, your home will be surveyed to see if essential repairs are needed. The Scottish Government will pay for these repairs. But if the cost is likely to be more than £8,500, you may not be able to take part in the scheme unless someone is prepared to pay the extra costs over £8,500. This could be you, your future landlord, your lender or someone else with an interest in your home.

If you are applying to join the Mortgage to Shared Equity scheme, your home must be above the ‘tolerable standard’. This means that it must considered fit enough to live in. If it does not meet this standard, your application will be considered for the Mortgage to Rent scheme.

Shared equity and shared ownership properties?

If your home is a shared equity or shared ownership property, you can apply to the Mortgage to Rent scheme. You cannot join the Mortgage to Shared Equity scheme if you have bought a shared ownership or a shared equity house.

Equity and Mortgage to Rent

If you are unsure what equity is, see the earlier information box What is equity? in the earlier section Mortgage to Shared Equity Scheme.

If you have equity and join the Mortgage to Rent scheme, you will normally be able to keep some of the profit (but see the earlier section Repairs). After secured lenders or others with an interest in your home have been repaid:

• you can keep £11,360 if you are under 60 years old; or

• you can keep up to £17,040 if you are 60 or over.

If there is any extra money left over, it will be used to fund the scheme.

Effect on benefits

If you do receive any profit after your home is sold, check if this will have any impact on your entitlement to benefits, for example Housing Benefit or the housing costs element of Universal Credit. This is because there are rules on the amount of capital you can have, and still get benefits. Contact us for advice.

Can I still get help if I have negative equity?

Your home is in ‘negative equity’ if the money that would be raised by selling it would not clear all the loans secured on it. For example, if your home is worth £100,000 and the mortgage and secured loans add up to £120,000, you would have negative equity of £20,000. This is also called a ‘shortfall’.

See our fact sheet Negative equity in your home for more information.

If your home is in negative equity, you may only get help from the Mortgage to Rent scheme.

If you have negative equity but are interested in the Mortgage to Rent scheme, the Government will ask you to get the shortfall agreed with your lender. You might want to ask your money adviser to help you with this. If the lender states in writing that they are willing to accept the shortfall, you can carry on with your application in the normal way. If they are not willing to help, you will not be able to join the scheme and will have to look for other options to deal with your mortgage arrears. Your adviser may be able to help you with this. Contact us for advice.

The application

You need to complete an application form with the help of an approved money adviser and provide a letter confirming that you have taken independent money advice. You cannot apply until you have sought the advice of a money adviser. See the Useful contacts section at the end of this fact sheet for information about how to find a money adviser. Make sure you provide all the information asked for, otherwise your application will not be accepted. If you need extra help to fill in the form, phone the Home Owners’ Support Fund helpline on 0300 244 1093, or email HOSF@gov.scot.

After the application

Once you have sent your completed form and all the supporting information to the Scottish Government, they will make a decision about whether to go further with your application. This may involve arranging to get an up-to-date valuation of your home through a survey. They will also use the survey to check whether any repairs are needed.

• The Scottish Government will write to you explaining their decision.

• If you are applying for the Mortgage to Rent scheme, your future landlord will want to visit your home and carry out various checks. Solicitors will carry out any legal work that may be needed.

• If you are applying for the Mortgage to Shared Equity scheme, your money adviser will work out what your income and outgoings are and what you can afford to pay to your mortgage. They will send this information to the Scottish Government. If, having looked at your financial situation, your money adviser does not think that you can afford the Mortgage to Shared Equity scheme, they can make an application to the Mortgage to Rent scheme, if that is what you wish.

Paying for legal costs

If you join the Mortgage to Rent scheme, you may have to pay for some of your legal costs. Ask your money adviser if this is likely to be the case.

If you take part in the Mortgage to Shared Equity scheme, you will have to pay for your own legal advice and legal costs. You will also have to pay for any legal costs charged by the Scottish Government for returning the share to you during the scheme.

Help with rent

If you become a tenant through the Mortgage to Rent Scheme and you meet the general rules for Housing Benefit or Universal Credit housing costs element, you may be able to get help with your rent. Contact us for advice.

The 'bedroom tax'

If DWP or your council think that you have more bedrooms than you need, they may reduce the amount of support they give you with your rent. If they do, ask the local council to give you a Discretionary Housing Payment to make up the difference.  Contact us for advice.

LMI after Shared Equity loan

If you get a Mortgage to Shared Equity Scheme loan to make your mortgage payments more affordable, and you have been getting help with your mortgage from LMI, you may still get this help. However, it will be reduced to reflect the size of your remaining mortgage.

Loan for Mortgage Interest (LMI)

What is a loan for mortgage interest?

From 6 April 2018, Support for Mortgage Interest (SMI) benefit is replaced with a loan, called a Loan for Mortgage Interest. The new loan attracts interest. Usually this loan is secured to your property. This is a complicated area. Contact us for advice.

Before 6 April 2018, Support for Mortgage Interest (SMI) was a benefit. SMI helped people who qualified with payments towards the interest payments on their mortgage.

Who provides the loan?

If you need help with your mortgage and you are claiming certain benefits, you may be able to apply for a loan to help with the mortgage payment. These loans are provided by the Department for Work and Pensions (DWP).

Which benefits do I need to claim to get a loan for mortgage interest?

If you claim Income Support, Pension Credit, income-related Employment and Support Allowance or income-based Jobseeker’s Allowance, you should be able to apply to the DWP for a loan to pay some, or all, of the interest on your mortgage. If you claim Universal Credit (UC) the rules are more complicated. You may be able to claim for a loan for mortgage interest as long as you have not done any paid work at all during the time you claimed UC.

These are called qualifying benefits.

When can I claim the loan for mortgage interest?

If you claim Pension Credit (PC) you can qualify for help from the loan payments as soon as you claim PC. In other words, there is no waiting period.

If you claim UC, the rules changed on 3 April 2023. Usually, you cannot receive loan payments for the first 3 months of the claim.

If you claim Income Support, income-related Employment and Support Allowance or income-based Jobseeker’s Allowance, you cannot receive loan payments until you have been claiming these qualifying benefits for 39 weeks.

How much of my mortgage will be covered by the loan?

The government has set a maximum amount of mortgage that the loan will help towards. This is:

• £200,000 if you are of working age; or

• £100,000 if you receive Pension Credit.

The Loan for Mortgage Interest is to be paid towards the mortgage on the house you normally live in. If you claim Income Support, Pension Credit, income-related Employment Support Allowance or income-based Jobseeker’s Allowance, the loan may also pay towards a secured loan for home improvements or repairs that you did prior to claiming benefits.

If you claim UC, the housing costs element is paid towards the interest payments due on any debt which is secured on your home or an alternative finance payment (for example, an Islamic mortgage).

How long can I claim the loan for?

You can claim the loan for as long as you are entitled to the qualifying benefit. There is no time limit for how long you can have the loan. This is different to the old SMI benefit.

Do I have to repay the loan?

You will be expected to pay the loan for mortgage interest back. However, you do not have to start paying it back straight away. You will be asked to repay the loan if:

• you sell your home;

• the title for your property is transferred, assigned or otherwise disposed of; or

• you die.

If you live at home with a partner who also claims benefits, the loan will not need to be repaid until both of you do not need the house any longer. In any of these situations, if there is not enough equity to repay the loan, any money still outstanding will be written off. In other words, if there is not enough money left from your house sale to pay off your mortgage and the Loan for Mortgage Interest, the DWP will not ask for more money.

You can choose to start to repay the Loan for Mortgage Interest. You must pay at least £100 at one time, unless you owe less than £100 in total.

Do I have to claim the loan?

No, you do not have to claim the loan. It is optional. If you do not agree to accept the loan, you will need to find another way of paying your mortgage payments. The Money Advice Service website has some useful information about this. You may need to take some independent financial advice to help you decide what to do. You can find a regulated, independent financial adviser on the Money Advice Service website.

Increasing your income

It is very important to make sure that you are getting all of the benefits and extra help to which you might be entitled.

If you have mortgage payment protection insurance, check to see if you can make a claim. If you are turned down, contact us for advice.

To check you are getting everything you should, use an online benefits checker. Use the benefits calculator at www.turn2us.org.uk or you could contact a local advice centre. Contact the Money Advice Service to find local advice. See Useful contacts at the end of this guide.

Contact Shelter Scotland on 0808 800 4444, or see scotland.shelter.org.uk to search for face-to-face advice.

Lender threatening court action

If you are in arrears and your lender is threatening court action, you should take the following steps.

• Make sure your lender knows that you have claimed LMI.

• Most mortgage interest payments are sent direct to your lender by the DWP. If your lender is not part of this scheme, ask them if they will accept direct payments.

Household mortgage arrears

For more information about how to deal with mortgage arrears, see our detailed Household mortgage arrears fact sheet.

This fact sheet covers the following areas.

• Coming to an arrangement with your lender.

• What to do if you can't afford your mortgage.

• What if my home is worth less than the mortgage?

• Second mortgages or secured loans.

• What if my mortgage lender takes me to court?

Sale and rent back schemes

As well as the Home Owners’ Support Fund, which is run by the Scottish Government, there are other schemes run by mortgage lenders and private companies for profit. These are generally called ‘sale and rent back’ schemes, but might also be known as ‘mortgage rescue’ schemes.

The Financial Conduct Authority (FCA) (known as the Financial Services Authority before 1 April 2013), brought in new rules in July 2009 to improve how sale and rent back companies behave. The full rules came into effect on 30 June 2010. From then on, sale and rent back agreements have to include:

• a fixed-term tenancy agreement of at least five years; and

• a cooling-off period of 14 days to give you time to think through your decision.

Companies providing private sale and rent back schemes now have to be authorised by the FCA. If a company offers a sale and rent back scheme without being authorised it is committing a criminal offence. You can check the FCA's Financial Services Register of authorised companies on the FCA website www.fca.org.uk.

By law the company will need to have a complaint handling procedure, which they should tell you about. If you have a complaint and you are not happy with the company’s final response, or have not heard from them after eight weeks, you can ask the Financial Ombudsman Service to look into it. See Useful contacts at the end of this fact sheet.

Be very careful before you sign an agreement for a sale and rent back scheme. Make sure you understand how this affects your home and finances. It should be seen as a last resort. Get independent financial advice and contact us for advice.

You may be able to challenge the agreement that you made; for example, if you were told one thing and the contract says something different. If you think this might apply to you, contact us for advice.

Quick sale companies

There are companies that specialise in buying homes from owners in financial difficulty, or who otherwise need a quick sale. The catch with these schemes is that the price the company pays for your home will be less than its market value. There have also been reports of very high fees and companies making misleading claims about the true value of your home. Be careful.

The Money Advice Service warns consumers to be careful on their website page about Quick house sales. You will also find information there about how to make a complaint if you have received poor service from a company. Contact us for advice.

Before agreeing to anything with a company offering you a quick sale, contact us for advice.

Useful Contacts

consumeradvice.scot Phone: 0808 164 6000 www.consumeradvice.scot

Financial Conduct Authority Phone: 0800 111 6768 Email: consumer.queries@fca.org.uk www.fca.org.uk

Financial Ombudsman Service Phone: 0800 023 4567 or 0300 123 9123 Email: complaint.info@financial-ombudsman.org.uk www.financial-ombudsman.org.uk

Jobcentre Plus New benefit claims Phone: 0800 055 6688 www.gov.uk/contact-jobcentre-plus  

Money Advice Scotland
Phone: 0141 572 0237 Email: info@moneyadvicescotland.org.uk www.moneyadvicescotland.org.uk

Money Advice Service Free advice and guidance on money matters. Phone: 0800 138 7777 Email: enquiries@moneyadviceservice.org.uk www.moneyadviceservice.org.uk

Scottish Government Phone: 0300 244 1093 (Home Owners' Support Fund) Email: HOSF@gov.scot
www.gov.scot

Shelter Scotland For advice or to find your nearest housing advice centre. Phone: 0808 800 4444 scotland.shelter.org.uk