My landlord has defaulted on their mortgage. What should I do?

This is a question we are asked by tenants although thankfully, it is a rare occurrence and you need not be worried unduly. If this situation does arise then you are fully protected in law and you are not under threat of eviction.The first thing to remember if you find yourself in this situation is that you should try to stay calm. Contact your letting agent immediately – they will be able to offer advice and open a dialogue with the lender.

How will I know if my landlord defaults on their mortgage?

Generally, a landlord who is defaulting on their mortgage will probably not tell anyone about the problem as they often wish to collect the rent for as long as possible. In my experience the Bank will get in touch with us and the tenant and let us know what is going on. If the Bank contacts you, we would recommend you get in touch with us as soon as possible and we will help by liaising between you, the landlord and the Bank to ensure that you are kept fully informed. You shouldn’t need to consult a solicitor or the Citizens’ Advice Bureau as you are protected under the law and a professional letting agent should be able to provide the support you need.

What are my rights?

Tenants who are renting a property under an Assured Shorthold Tenancy (AST), which is the most common type of tenancy agreement, have the right to remain in the rental property until the end of their tenancy unless there is a specific clause in the agreement enabling a mortgagor to forfeit the lease. Therefore in the majority of circumstances you cannot be evicted from your property if you are part of the way through a tenancy. Nothing will change during the course of the tenancy.

If there is provision under the tenancy agreement to allow the lender to end the tenancy, the lender has to serve notice in line with the terms of your specific tenancy agreement.

What happens when the tenancy ends?

At the end of the tenancy, the lender must serve a Section 21 Notice giving two months’ notice to end the tenancy. You must pay the rent until the date which is set out in the Section 21 Notice.
Sometimes we find that the lender prefers to let the tenant stay longer in the property as they can continue to collect the rent to cover interest payments. Ultimately they will probably want to sell the property but they may leave the tenant in place as this gives any potential investor an immediate income stream. Every case is different and our role is to liaise between the tenant and the lender to hopefully ensure a smooth outcome for all.

Periodic Tenancies

If you are renting through a Periodic Tenancy the situation is different. A Periodic Tenancy occurs if, after an Assured Shorthold Tenancy ends, neither landlord nor tenant signs another agreement and a Periodic Tenancy is automatically established on a rolling basis on the same terms and conditions as the previous Assured Shorthold Tenancy. In this case, the Bank can serve a Section 21 Notice giving you two months’ notice to end the tenancy.

Do I need to go to court?

You should not need to go to court unless you fail to leave the property following the two months’ notice period of a Section 21 Notice.

Am I entitled to any compensation?

No, there is no compensation available for tenants.

What happens to my tenancy deposit?

Assuming that the tenancy deposit is held in a government approved scheme (ours are held in the Tenancy Deposit Scheme), then it is protected in the same way as if the property were not being repossessed. It simply covers any damage or non-payment of rent and will be returned to you in the normal way.

What happens if the landlord’s mortgage is not a buy-to-let mortgage?

If this happens, the landlord has let the property illegally but you still have the same rights under your tenancy agreement so you should not be affected.

How your letting agent can help?

If your rental property is professionally managed by your letting agent, they will be able to liaise on your behalf, taking a lot of the stress away from you and ensuring a satisfactory outcome. If you are not renting a managed property via the agent who arranged the let, contact them for guidance and they should be able to guide you especially if they are collecting rent on behalf of the landlord.