See our fact sheet:
Whether the limitation period is six or 12 years, it is important to understand exactly when the time limit started. Under the Limitation Act, time starts to run from the 'cause of action'. This is not the same for all types of debt, so be careful. In this fact sheet, we only look at the cause of action for mortgage shortfall debts. If you have another type of debt, contact us for advice.
payable on demand mortgages
Some mortgages have terms that say the debt is 'payable on demand'. This can make it more difficult to use the Limitation Act. If you think this applies to you, contact us for advice.
The Limitation Act says that where you owe mortgage capital, the cause of action is when the lender is entitled to be paid in full. Under the terms of most mortgages, this is usually after two or three missed payments.
The Limitation Act says that where you owe mortgage interest, the cause of action is when the interest becomes due for payment.
What if I handed back the keys?
If you handed back the keys and were not in arrears with your mortgage, the time limit probably started running when you gave your lender the keys. If there were arrears at the time, then the time limits above will apply.
Acknowledgement and payment
restarting the time limit
Once the time limit has started running, there are two ways it can start from the beginning again. If you are going to argue your debt is statute-barred, you must be reasonably sure you have not restarted the time limit running in either of these ways.
Payments toward interest do not extend the time period for the creditor to claim any other interest that is owed. They are treated as payments toward the capital part of the debt. This means that any payment you, or any joint owner such as your partner, make within the 12 year limitation period will cause that time limit to start running again from the beginning.
if the limitation period has passed
If you made a payment, or acknowledged the debt, but the limitation period of six or 12years had already gone by, and no court action had already been taken, you probably should not be forced to pay the debt. Contact us for advice.
The time limit, either six or 12 years depending on whether it is capital or interest, will start running from the beginning again if you write to the lender, admitting or agreeing you owe the debt. This is known as ‘acknowledgement’. The rules are different if you owned the house jointly with someone else. See Joint debts later in this fact sheet.
The Financial Conduct Authority rules
when the FCA's MCOB rules apply
Most first mortgages taken out on or after 31 October 2004 will be regulated by the FCA's MCOB rules. If you are unsure whether your mortgage is regulated, contact us for advice.
On 1 April 2013 the Financial Conduct Authority (FCA) took over the regulation of mortgage lending, and problems with existing mortgages.
TheFCA’s Mortgages and Home Finance: Conduct of Business sourcebook (MCOB), says that a lender “must deal fairly with any customer who has a mortgage shortfall debt”. A lender does not have to recover a shortfall debt, but if they do, they must tell you in writing, within six yearsof the date your home was sold. If they don’t, you can complain to the Financial Ombudsman Service (FOS). SeeUseful contacts later in this fact sheet.
Council of Mortgage Lenders policy
older mortgage shortfall cases
The CML policy only applies to new cases, and will not apply to you if you made a repayment arrangement with your lender before 11 February 2000. It will also not apply if your lender contacted you before this date, even if it was six yearsor more since your house was sold.
The Council of Mortgage Lenders (CML) say in their policy:
“anyone whose property was taken into possession and sold more than six years ago, and who has not been contacted by their lender for recovery of the outstanding debt, will not now be asked to pay the shortfall”.
The CML policy is now part of the FCA’s MCOB rules. The CML part of MCOB is a voluntary code, but should be followed as good practice by lenders. MCOB only covers lenders that are regulated by the Financial Conduct Authority (FCA). If you are not sure if your lender is covered by MCOB, contact us for advice.
what does contact mean
Contact from your lender can mean a letter or a phone call. It doesn’t matter if you opened the letter or not. A letter written to you at an address where you were not living at the time will not usually count as contact unless the letter was forwarded to you. Contact us for advice.
When can I use these rules?
It is important to understand that the MCOB rules, including the CML policy, operate separate to the Limitation Act. This means that making a payment or acknowledging the debt in writing does not matter if you are relying on these rules to argue you should not have to pay.
MCOB and the CML policy are useful if you cannot use the Limitation Act as a legal defence as to why you should not have to pay.