Lender arrears management options and LPA receiver appointment
On first missed payment: contact lender immediately — proactive engagement is required by FCA MCOB rules and gives strongest negotiating position. Lender arrears management options: (1) Repayment plan — arrears spread over agreed additional repayment period; (2) Capitalisation — arrears added to outstanding balance; normal payments resume; (3) Term extension — extend remaining term to reduce monthly capital element; (4) Switch to interest-only — temporarily switch repayment BTL to interest-only to reduce monthly cost; (5) Payment holiday — temporary suspension; deferred payments added to balance; lender's discretion; (6) Product switch — switch from high revert-to rate to competitive new product if landlord meets lender criteria. LPA receiver (LPA 1925 s.109): appointed without court order when mortgage in default; receiver collects rent from tenants on lender's behalf; tenants must pay receiver once notified; receiver manages property; can sell using lender's power of sale; receiver charges 5-10% of rent; receiver's costs added to mortgage account.
- Engage lender before arrears arise where possible — proactive contact demonstrates good faith and widens arrears management options
- LPA receiver: tenants must pay rent to receiver once formally notified; continuing to pay landlord after notification does not discharge tenant's obligation to receiver
- LPA receiver: does not end existing tenancies; receiver takes over management but tenancies continue; tenants should maintain tenancy as normal
- Voluntary sale before LPA receivership always preferable — receiver sale typically at auction achieves 10-20% below open market value; landlord retains greater equity through voluntary sale
Mortgagee possession, Ground 2, credit impact and practical steps
Mortgagee possession (court proceedings — last resort): lender applies to county court for possession order against landlord; if granted, lender becomes mortgagee in possession; sells property using power of sale (LPA 1925 ss.101-103); net proceeds (after mortgage; costs; interest) paid to landlord as equity surplus; shortfall = personal debt recoverable by lender. Ground 2 (RRA 2025 — mandatory): mortgage granted BEFORE tenancy; mortgagee requires possession for power of sale; court must order possession; 4-week Section 8 notice citing Ground 2 required before court proceedings; does NOT apply where mortgage post-dates tenancy (mortgage is subject to existing tenancy). Credit impact: arrears; formal defaults; CCJs recorded on credit file 6 years from registration; significantly affects future BTL mortgage eligibility.
- Ground 2: mandatory possession — court has no discretion to refuse if conditions met (mortgage pre-dates tenancy; mortgagee requires possession); tenants lose home despite no fault of their own
- Ground 2 does NOT apply to mortgages granted after tenancy — new mortgage on existing tenanted property is subject to tenancy; lender cannot use Ground 2 to evict tenants
- Credit file: manage arrears proactively before formal default is registered — arrears repaid without default have less severe credit impact than registered defaults or CCJs
- Practical steps: calculate whether rent shortfall is temporary (void period) or structural (rate too high for rental income); structural shortfall requires product switch; remortgage; rent increase via s.13/RRA 2025 notice; or voluntary sale