A Voluntary House Repossession
The Pro's And Con's of A Voluntary Repossession
A Voluntary Repossession Is Just That - Voluntary. Which Means You Hand Over Your Keys Without Going To Court.
If you can't pay your mortgage, one option is to leave and give your keys to your lender. This is called voluntary repossession. Your lender may suggest this if you are unlikely to be able to pay off what you owe.
This really is a very last resort. If you hand over the keys, your debt will most likely increase and it will become much more difficult to get a mortgage in the future. If you have already agreed to give your keys to your lender, until the house is sold, it may not be too late to find another option.
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Paying The Mortgage After A Voluntary Repossession
If you hand back your keys, you will still have to pay your mortgage until your lender sells your home and you may also have to pay for somewhere else to live.
The money your lender gets from selling your home will have to cover:
- the capital you originally borrowed, plus interest
- buildings insurance (remember, your policy may be invalid if the property is empty, in which case you'll need to take out a new policy)
- any arrears that you have
- penalty charges for missed payments
- your endowment policy or ISA (if you have an interest only mortgage)
- council tax for at least six weeks
It may take a long time for your lender to sell your home, so the amount you owe is likely to increase considerably.
When Your Property Is Sold By The Lender
It is unlikely the lender will get as high a price for your home as you would if you sold it privately. Lenders will try and sell repossessed properties quickly, so they often accept a lower than market value offer or sell the property at auction.
If your property is sold for less than the amount you owe, you will have to pay off any remaining debts. If you took out a mortgage indemnity guarantee, this may pay off the difference, but the insurer can take legal action to force you to pay it back, even after the property is sold - read more about mortgage shortfall here.
The Cost Incurred When A Lender Sells Your Property
You normally have to repay any reasonable costs incurred by your lender when selling your home. This can be expensive and usually includes auctioneers' or estate agents' fees and bills for any essential repairs that are needed.
Additionally, you may have to pay capital gains tax when the sale is completed if, the value of the property has increased since you bought it and if it is not your main home (for example if it has been rented to tenants).
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