Know your rights
Most mortgages are consumer credit contracts, so you have extra protection under the Credit Contracts and Consumer Finance Act (CCCFA). This protection includes rules about what fees your lender can charge when you refinance early or repay your loan early.
Lenders must make reasonable enquiries to ensure that a mortgage will meet your requirements.
Lenders must also provide credit with reasonable care and skill under the Consumer Guarantees Act and comply with the Lender Responsibility Principles and the Responsible Lending Code.
Lenders must be satisfied that you can afford to borrow the mortgage amount and make repayments without suffering substantial hardship. They are there to help you make an informed decision about whether or not to take out a mortgage. If you do go ahead, they can help you choose the best type of mortgage and give you advice to help you manage it well.
Lenders must make information about their standard contracts, fees, and interest rates publicly available (online) so you can compare mortgage rates more easily.
However, lenders do not have to agree to lend to you. They will take into account your income, job security, other debts and your credit history.
Credit related insurance
Some banks or lenders require you to have life insurance to cover your mortgage if you die or mortgage protection insurance.
Read Credit related insurance and warranties to find out whether you need it.
Mortgage brokers have to be registered financial advisers and comply with the Consumer Guarantees Act for their services. Check the Financial Service Providers Register(external link) to confirm registration and which services are authorised. Find out:
- what, if any, fees they will charge you
- which mortgage providers they deal with
- what commission they receive from the different lenders.
Read Getting financial advice to find out more.
Difficulties with repayments and hardship application
If you’re not already way behind in your loan repayments, ask your bank or lender for a change to the terms of your contract to help you meet your obligations. It’s too late to ask for a change if you’ve been in default for at least two months, or missed four consecutive payments, or received a mortgagee notice of default.
Changing the terms of your contract might include getting a mortgage holiday for a certain time, reducing your repayment amounts, or both. Be aware that these options increase the length of your loan and how much interest you pay overall.
You may make a hardship application in writing under the Credit Contracts and Consumer Finance Act (CCFA). In the application, you need to explain the particular cause for your payment difficulties, eg because of illness, injury, loss of employment, or the end of a relationship. You only get one chance to make a hardship application every four months, unless there are new and greatly different reasons for a new application within that time. The bank does not have to agree to assist you, but often they will if you approach them early.
Mortgagee sales and debt recovery
If you are not able to negotiate an arrangement with your bank or the lender, they may begin the debt recovery process and the mortgagee sale. To find out more about this process, see the Banking Ombudsman’s quick guide to Mortgagee sales.
Letter of demand
The first step of the debt recovery process is a letter of demand. If you don’t meet your repayment obligations, you are in default and a letter of demand is sent to you. It tells you how much you owe and demands payment by a certain date.
When you receive this letter, contact your lender and ask if it is possible to agree on a repayment programme, which makes it easier for you to repay your debt. If not, get some legal advice and consider either selling your house or refinancing with another lender.
Property Law Act notice (PLA)
If you haven't paid back the full amount specified in the letter of demand, you’ll get a PLA notice stating that you are in default. The notice will also tell you to pay a certain amount by a set date at least 20 working days after the notice is issued
If you haven't already done so, contact the lender about a repayment programme and/or get legal advice.
If you don’t pay the amount specified in the PLA notice by the due date, the bank or the lender has the right to sell your property to recover the loan amount, interest and other costs, such as an early repayment charge on any fixed rate loans. They must take reasonable care to get the best price for the house. This care includes getting an independent valuation and appointing a real estate agent to market the property. The lender may pass on these costs to you.
After the mortgagee sale
You will be liable for the shortfall, if your house sells for less than the amount you owe. The lender may agree to enter into a repayment programme for the balance of your debt, or they could choose to take recovery action.
See Mortgagee sales(external link) on the Banking Ombudsman’s website to find out more.