Mortgage shortfall

If your property’s not worth enough to pay what you owe on the mortgage, you’re in a situation known as “negative equity”. If the property’s then sold – either by you, or by the lender after they take possession – that negative equity becomes the shortfall. It’s the debt that remains after the sale proceeds have been used up.

The shortfall debt may include the monthly instalments and interest added while your property’s being sold. If the sale’s being handled by your lender, the debt might also include legal costs and estate agency fees. 

You might be contacted about repaying a mortgage shortfall debt by your former lender, by someone acting on their behalf, or by a debt collection company that’s bought the debt from the lender. That contact might happen soon after the sale, but it can be many years later.

You could be unhappy because:

• you thought that you’d have nothing more to pay after handing back the keys or repossession
• you’re being asked to pay more than you think is owed
• you think you're no longer liable to pay the debt
• you think someone else should be paying. This might be your former partner on a joint mortgage, or because you’ve been wrongly identified as the debtor

It’s important you talk to the business that’s asking you to repay the shortfall – particularly if you think you’ll struggle to pay off the debt. That way, you might be able to agree an approach that can work for you.

The business needs to have the chance to put things right. They have to give you their final response within a specified time limit.

After that, if you’re still unhappy you can get in touch with us – we’re here to help.

Find out more about how to complain.

Disputes over the shortfall amount 

If you think the mortgage balance was higher than it should have been, perhaps because of interest, charges or sale costs, we’ll look at the mortgage terms and conditions and see what they say about who’s responsible for them. We’ll consider the circumstances in which the costs were applied, and whether it’s fair for the lender to add them to the balance. 

You might think the lender didn’t get the best price for your house so it’s their fault that there’s a shortfall. We’ll look into how the house was valued and marketed, and decide whether the lender got a fair price.

Being contacted about the shortfall

It might have been some years since the property was sold. Then, out of the blue, you’re contacted about a shortfall. We’ll consider whether it’s fair for the lender (or debt collection company) to ask you to repay. We’ll take into account the FCA’s rules on mortgage shortfall time limits, and any contact that’s been made in the meantime.

If you’re unhappy with the way you’re being contacted by a company trying to recover a shortfall debt, we’ll look at whether their contact’s in line with rules and laws protecting you against harassment. They’ll need to have taken account of the way you prefer to communicate. But dealing with debt is a two-way street, and we’ll expect you to have been open to discussing the shortfall with them.

If we decide you’re being treated unfairly over a mortgage shortfall, there’s a range of things we might suggest such as telling the lender to adjust the amount you owe, to set up a fair repayment arrangement based on your current money situation, or in some cases to stop seeking repayment from you entirely.

We might tell them to pay you compensation for any distress or inconvenience they’ve caused.

Search our decisions database to see our past decisions on complaints involving mortgage shortfalls.