For people in struggling with debt, their money troubles can leave them worried about some of the most fundamental aspects of their lives, like their job and their home.
While debt shouldn’t pose an immediate risk to your employment rights, it can put your property at risk and, in the most serious cases, a creditor might attempt to have you evicted.
Fortunately, many debt solutions are designed to minimise the risk of losing your home, whether you own it outright, or rent. With that in mind, we’ve created this short guide to help you understand how to protect your home when you’re dealing with debt.
What is a housing debt?
Whether you’re renting your home, or you borrowed money from a lender, you will expected to make regular payments to the property.
If you have a problem finding the money to meet those costs, you can quickly find yourself in housing debt and may need debt help in order to pay your debts.
The most common forms of housing debt are mortgage and rent arrears.
Not many people have the budget to purchase a property outright, so instead they take out a loan from a mortgage lender.
Your provider will then act as your creditor. You make a monthly payment to the company in the same way you might repay your credit cards.
If you have a problem keeping up with monthly payments, you will find yourself in arrears.
Like any other debt, missed payments will be recorded on your credit file, and your provider may try to force you to pay your debts, with options up to and including repossessing your home.
Renting involves making a monthly payment towards your home, with your landlord acting as the creditor in this situation.
If you’re struggling to pay your rent and fall behind, you will be considered in rent arrears.
Because you don’t own the property, repossession isn’t an option, but your landlord can seek legal action to evict you from your home.
We have a wide range of debt management solutions that could help you write off up to 81% of your debtsCheck if you qualify
I'm in debt. How do I protect my home?
It’s not easy being in debt. Homeownership complicates things even further. Someone struggling with debt might already worry for their family or their job, but people with serious debt can find their in question too.
Luckily, there is support available to people juggling debt and homeownership.
Individual Voluntary Arrangement (IVA)
An IVA is a UK debt solution that takes a series of debts, whether it’s loans, store cards, or credit cards, and transforms them into a single monthly payment.
That payment will be divided among your creditors and after a period of time, usually five years, you will be debt free.
One of the main advantages of taking out an IVA is that, if you stick to the terms of your plan, you’ll be able to keep your home.
That doesn’t mean your home won’t be affected in any way – if you’re able to release any money from your house (equity), it will be brought into your plan to help pay back more of your debts.
A Trust Deed is essentially the Scottish version of an IVA (which is only available in the rest of the UK).
Like an IVA, a Trust Deed will place you under a strict budget for the length of the payment term, and once you have made your monthly payments, this time after four years, you will be free of your debts.
However, even with a Trust Deed, you may be asked to release money from your house’s value.
This could mean taking a step backwards in the process of paying off your home, but it does allow you to avoid legal action that would put your home at risk.
Can I use my home for debt consolidation?
It is possible to use the value of your home to help with your debt, but this can put your home at risk and should be considered carefully.
If you have enough value in your home to clear your unsecured debts, you might choose to release this by remortgaging the property.
This can be the right solution for some people, but there’s always the risk of losing your home if you find yourself unable to keep up with the adjusted payments.
Most debt solutions should not affect your tenancy or ability to rent a property. You also do not need to tell your landlord if you’ve entered a debt arrangement.
Rent arrears cannot usually be included in an IVA or trust deed. However, a debt solution could reduce your monthly debt payments, meaning you can free up more money to cover necessities like rent or catch up with any rent arrears.
Can you get a mortgage when you're in debt?
While it may be tricky, the underlying message here is that, yes, it is possible for people who are in debt to get mortgages.
The question of how easy that process will be, however, depends entirely on your financial circumstances, and how you choose to settle your debts to creditors.
Some debt solutions leave open the possibility of buying a home
If you’re repaying your debt through a Debt Management Plan (DMP), for example, it won’t automatically kill your ability to get a mortgage.
It will make it more difficult, though, because the DMP impacts your credit rating, one of the first things a lender will look at when considering whether to let you borrow.
Other debt solutions exclude you from buying a home
If you find yourself in a Debt Relief Order (DRO), on the other hand, buying a home is out of the question. Part of the criteria for getting a DRO is that you don’t have any large assets.
Attempting to enter one when you already own a home, or are in the process of buying one, puts you at risk of breaking the agreement, and you may find yourself being contacted by a solicitor.
Is it better to pay off a debt or buy a house?
For a lot of people, buying a home to call their own is one of their most important financial goals.
But if you have credit card debt, an unpaid loan, or a bank account that’s in the red at the end of the month, is it a good idea to take on more credit before you’ve cleared your existing debts?
As previously mentioned, it’s possible for someone to get a mortgage while they’re carrying other forms of debt, but it’s not easy.
Any routine credit search is likely to touch on your debt level, which won’t help you when it comes to lenders considering your application, or what interest rate to offer.
The best advice is to take advice. If you find yourself in the position where you have unsettled debts, and you’re thinking about buying a new home, you should seek professional help from a debt expert.
They’ll be able to look at your personal circumstances and give you all the information and debt advice you need to move forward.
Debt can affect homeowners in many ways, so it’s important to seek professional advice before deciding how to tackle your debt.
You can find out more about how debt can affect your home at the following links:
You could write off up to 81% of your unsecured debt today
Where can I get debt advice on debt and my home?
When you’re in debt and you’re worried for you home, or you’re looking into ways that you can protect it from creditors, it’s not easy.
The good news is that, by visiting our website, you have taken the first step towards finding the services and advice you need.
At Creditfix, we’re the biggest IVA provider in the UK, and a hub for people dealing with housing debt.
Our expert debt advisers have the experience needed to guide you through your options, and help you find a debt solution that protects your finances and your home.
If you’re struggling with housing debt and are in need of debt help or money advice, we’re just a phone call away. Get in touch today for free on 0800 0431 431.