How To Stop A House Repossession
Most mortgage lenders will start repossession proceedings if a mortgage has more than three months of mortgage arrears and there has been no informal agreement to repay the arrears. According to The Council of Mortgage Lenders 1 in 30 mortgages are in arrears, with 1 in 100 mortgages with arrears of three months or more by 2011 – they have predicted an increase by up to 40% for 2012.
Of course not all of these homes result in a repossession and here we explain your options and solutions which can help to avoid a repossession which enable you to make an informed choice which will suit you the most.
Working out your options can be very difficult, especially if your situation is changing, due to employment, re-location, family issues, etc. Therefore this information is intended as a guide and we recommend if you are unclear or have doubts with which option will suit you best you should seek independent advice.
Option 1 – Pay The Mortgage Arrears in Full
If you are able to, the quickest and most straight-forward way to stop the repossession process completely is to pay the outstanding arrears in full. If a banking error has caused the arrears and you can prove it was not your fault (for example you switched bank accounts) you should be able to claim bank any late payment charges. By communicating with your lender when and how you will be able to pay you may be able to avoid additional “arrears” charges.
Option 2 – Agree To Repay The Arrears Over Time
If you are unable to pay the arrears in full, but are now in a position to continue with your usual mortgage payments plus some extra towards the arrears you owe. Most reputable mortgage lenders will give you chance to suggest a payment plan for the arrears you owe. Once this has been agreed they will usually ask for confirmation in writing. You should only agree to what you can afford as this is an informal payment plan, the lender is under no obligation to accept it and can at any time demand the full outstanding arrears in full – They are more likely to do this if you miss or delay any of the arranged payments.
Option 3 – Pay As Much Mortgage As You Can
If you can not afford to pay the arrears, and struggle even to meet your usually monthly mortgage payment you should pay as much of your mortgage as you can afford every month. Remember to prioritise your debts – your mortgage and secured loans on your house should be your main priority. Talk to your mortgage lender and explain the situation.
If you are likely to be able to resume normal payments soon you should give them a clear indication when this will happen. If you do not believe you will be able to resume normal mortgage payments within the next couple of months then it would be wise to consider the other options below to avoid getting in to further mortgage debt.
Option 4 – Sell Your House Quick (Buy Another That Costs Less)
This option is often overlooked as most people do not what the additional hassle of moving house. Especially if you have lived in the house for a long time. However, this is a very sensible option, and one which can provide more certainty than most other options.
Selling your house quickly is often the option most often recommended by the legal experts. By selling and paying back the mortgage debt you can avoid a credit black list and a repossession registry entry. You will have more control over the price you accept and can minimise (in some cases avoid altogether) the costs associated with selling your property. Our 3 step plan helps you sell quickly.
You should remember if your financial situation worsens and your house is repossessed it will be much harder for you to get another mortgage to buy a house, especially if it was subject to any shortfall. Whereas if you sell your house quickly your mortgage is effectively cleared off and any remaining equity is paid directly to you as a cash lump sum.
Option 5 – Sell Your House and Rent It Back
This maybe a good compromise if you are reluctant to sell your house, but have exhausted all your other options available to stop a repossession. By agreeing a sale price and a rental price in advance with our fully FSA approved sell and rent back scheme you can sell your house and continue to live there for as long as you want at the agreed monthly rental cost.
This can often be less than your mortgage payments. This means you can clear your mortgage and any other debts, and depending on how much equity you have in your property you will receive a cash lump sum to spend as you wish.
You can rent back your house at an agreed price either in the short term whilst you find another house, or long term – it is entirely up to you.
Option 6 – Re-Mortgage or Release Equity
You may be able to lower your mortgage payments by re-mortgaging your property with an ‘interest-only mortgage’, or you could re-mortgage to release some equity which you can use to repay your outstanding arrears. A few words of caution – check you are not liable for any early repayment charges with your current mortgage lender, this can be thousands depending on how long you have had the mortgage. You should also be wary of any fees associated with your new mortgage, higher lending charges, and some other ‘admin’ charges can also amount to thousands. Seek professional financial advice, but remember most mortgage advisors work on commission.
Option 7 – Raise The Finances To Sell Via An Estate Agent
If you are able to raise the finance to pay off your mortgage debt, you could sell your property through a local estate agent. This will take longer, but it should ensure you receive the full market value from the property.
The downside is that you are not in control of the timescale, especially if you are in a chain. If the sale takes longer than anticipated then the on going cost of your mortgage repayments and estate agent fees could out-weigh the financial benefits of trying to sell your property for the full market value.
By David Beard