Tips on avoiding home repossession
Being at risk of having your property can be terrifying and can be very lonely. You are worried about what will happen if you lose your home and perhaps embarrassed about what people will think. The reality is you should not be embarrassed – tens of thousands of people are repossessed each year and as the recession bites harder they are on the increase.
You may feel overwhelmed by the situation, but the worst thing you can do is nothing. The lender will not give up pursuing you until either it is paid, or you reach an agreement or it has taken possession of the property. Here are a few tips as to what you can do when faced with repossession.
Speak to Your Lender
Your lender does not want to repossess your home. From a business point of view, it would be much more beneficial if you were to continue paying your mortgage to the end of the term as it would continue to make profit from interest payments. Also, if it has to sell it risks not recovering the full amount of the debt from the sale. It can still pursue you for any shortfall bit unless you still have other valuable assets or a large amount of disposable income (and if this was the case why would you be falling behind on your payments in the first place?) then it may end up having to write of significant losses.
With this in mind, speak to your lender as soon as you get into trouble. Be completely honest and upfront about your situation. Ask if there is anything the lender can do to help. This might be in the form of help with financial planning, a payment holiday or some other arrangement.
You may find that the lender tries to pressure you into agreeing an arrangement that you cannot really fulfil. You must resist this and only agree to make payments you can actually afford. Do not say what you think the lender wants to hear just to get them off the phone as this will only make it more difficult to get the lender to agree to something you can manage in future.
Second Mortgages and Secured Loans
As well as the lender with whom you have your main mortgage, you may have other debts secured on your property such as second mortgage or secured loan. These lenders have the same rights to repossess your property as your main mortgage lender and will also need to be involved in the process.
If you are not sure whether any other debts are secured on your property contact the Land Registry and request an “Official Copy of Register Entries” for your property. There is a fee payable of (currently) £4. The Charges Register lists all of the secured debts.
Get an indication of what your house might be worth. Websites such as Zoopla are useful for this and are free. Find out how much you owe your main lender and work whether your property is worth enough to repay your main mortgage. This is important because if a second lender wants to repossess and sell it will need to repay all of the money owed to any superior lender. If there will not be enough money from the sale to do this then whilst there may still be advantages to them repossessing, it will be a less attractive option.
Prepare a Debt Plan
Although you may think you’d rather not know, it is important that you are aware of exactly what situation you are in financially.
To find out; add up all of your incomings, then add up all of your outgoings not including your mortgage payments. Go through your outgoings and see if there is anything you could realistically reduce or cut out altogether. Subtract your outgoings from your incomings and what is left is what you can afford to pay on your mortgage.
Whilst it’s important understand that you will probably have to do without “luxuries” such as satellite/cable television, brand name food items, expensive clothes and a large car with high road tax and fuel consumption, you should avoid being too ruthless. You need to allow a little breathing room to save some money each month for when things go wrong. For example suppose your car breaks down; will you still be able to get to work? If not you can’t earn money and can’t pay your mortgage.
Ask Your Lender about an Interest Only Mortgage
Most residential mortgages are on a repayment basis. This means that part of each monthly payment you make goes toward paying off the original debt so that at the end of the term you have paid the debt in full.
With an interest only mortgage, you do not pay off any of the original debt. This means that the payments are lower, often quite significantly. It also means of course that at the end of the term you will still owe the money you originally borrowed and at that point the lender will expect payment in full. Nonetheless it can be a useful temporary measure. Even if you have to continue with an interest only mortgage until the end of the term, you property will hopefully have increased in value enough to allow you to sell it and repay the debt secured against it.
Lenders will often be willing to allow you to switch to interest only as an effective way of avoiding having to repossess and you should discuss this at an early stage before you allow your arrears to become too high.
Ask About Payment Holidays and Temporary Reductions
If you are experiencing temporary financial difficulties then your lender may be prepared to allow you to temporarily reduce your payments or even take a payment holiday. This might be enough to get you through a difficult period. You should however only suggest this if it is realistic and likely that your financial situation will improve by a given date.
Look Into the Possibility of Remortgaging
If you have equity in your property you may be able to remortgage, either to increase the term and so reduce the payments or to consolidate some other debts and so lower your outgoings. Even if you have no equity you may be able to get a better rate of interest or extend your term.
When contacting any potential lender you should full disclose your financial situation at the outset otherwise you may waste time going though the initial stages of the process only to be told you don’t meet the criteria once credit checks are carried out.
Selling and Assisted Sales
Unless you know you are in negative equity, get a valuation of your property and assess whether you can actually sell and get enough to pay off all of the debt secured on it. Even if you are in negative equity your lender might be prepared to assist you with a sale. They may write off some debt or convert it to an unsecured debt in order to avoid having to go through the expense of repossession proceedings.
They may contact other secured creditors and come to arrangements with them that will allow a sale to proceed.
Attend Any Court Proceedings About the Repossession
If you have a plan which you think is reasonable then, even if your lender will not accept it, the courts may. In order to evict you the lender will first need to obtain a warrant for eviction and before a warrant can be obtained it will need to get a possession order from the Court. If you are in arrears and if you don’t attend the hearing then it is likely the Court will have no choice but to grant the possession order, however if you do attend and if you present the Court with your plans for dealing with the arrears ten they may refuse the possession order or grant a suspended order which will only be enforceable should you breach your proposed arrangement.
If your are Repossessed, work with your Lender
Unfortunately, it will sometimes be the case that repossession cannot be avoided. If this is the case, whatever your feelings toward the lender, working them will ultimately be in your interests. Consider voluntarily giving up possession to the lender. This can save money and help keep down your total debt, which you will still be responsible for.
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