In difficult financial times many house owners may fall into arrears on their mortgage. Here are some tips to avoid repossession or if the worst comes to the worst, to help you know your rights.
1. Build up a Cash Buffer
Most mortgages have flexibility built in so if you can pay any extra in advance this will stand you in good stead. If things get tough you may be able to pay a reduced mortgage or even take a payment holiday for a period. Even on fixed rates most lenders will allow you to pay either 10% a year off the mortgage capital or up to £500.00 a month.
2. Check if you are entitled to benefits
You may have been sold or bought Mortgage Protection Insurance. Check if this is the case as it could meet your repayments for a year or two and allow you to get back on your feet.
Also enquire if there is any Social Security help that is available such as job seekers allowance.
Even if your redundancy payment means you will not be able to claim job seekers allowance you should register immediately as this is a requirement of any Government help.
Under the package of Government housing help announced recently from next April you will only have to wait three months before getting help (the current wait is nine months). The limit has been raised from £100,000.00 worth of mortgage to £175,000.00, although it is important to realise that the amount paid may not even cover the interest on your debt.
3. Check your Budget
Draw up a proper budget listing all your income and outgoings to help you evaluate your position. Your mortgage lender will expect you to have done this, and it will also be necessary if you need to get debt counselling. You can find a budget calculator at www.moneymadeclear.fsa.co.uk/tools/budget_calculator.html
4. Keep in Touch
The Council of Mortgage Lender's Director General Michael Coogan has said "The first step for anyone struggling to pay their mortgage is to contact their lender to get advice". There are a range of options the lender can consider to help reduce or reschedule your payments for a period of time while you get back on your feet. Lenders will use repossession only as a last resort. If you take positive action to contact your lender and pay what you can then you are more likely to reach an agreement that allows you to stay in your home.
5. Consider your Options
Talk to your lender or mortgage broker to see if there is a lower cost alternative. Otherwise your lender may be able to offer options including
i. reducing your monthly payment for a set period. Additional interest may be added to your overall loan
ii. reducing monthly payments by extending the term of your loan
iii. switching from a repayment basis to an interest only mortgage. You will eventually need to review how you are going to repay the debt
iv. adding arrears to the outstanding mortgage or accepting no payments for a limited period.
6. Do not bury your head in the sand
Ignoring your problems will not make them go away and is likely to make them worse. Do not ignore letters or telephone calls from your lender. Usually the lender will send a letter after you have missed one or two payments. If you fail to respond or your lender is not satisfied by your response another letter will usually be sent giving you 7 days before solicitors become involved.
7. Do not hand keys back
You should not hand the keys over without getting independent advice first. If you do your debt will probably increase and your name will appear on the mortgage repossession register making it difficult to obtain loans in the future. Repossession is the worse thing you can commit as far as a mortgage lender is concerned.
If you cannot find an alternative, selling is an option. By handing the keys to a lender you lose control and you will usually get a better price for your house while it is occupied than the lender will when selling it unoccupied probably at an auction.
You can be chased for any shortfall between what you owe and the money raised by the sale of the property. You can be chased for twelve years from the date of the first mortgage default but there is an informal agreement by the Members of the Council of Mortgage Lenders not to pursue you after six years.
8. If the case goes to Court you must turn up
Where you cannot reach agreement with your lender they are likely to go to court to obtain an Order for Possession. If that happens you should attend. You could still stop proceedings by making an acceptable offer to clear the arrears and maintain payments. Usually you will need to produce evidence to support your proposals, such as an offer of a new job. However the courts would also look favourably on you if you had at least been paying the maximum you can afford. A Judge would normally accept an offer to repay the arrears over a period of two years provided your offer is realistic. You should note that court costs and any bailiffs costs will be added to the debt.
9. Warrants for Possession
If you receive a Warrant for Possession giving a date, the bailiffs will attend and carry out any means to enter the premises including reasonable force. They will evict anyone living in the house and change the locks to ensure that you cannot get back in. Generally if possessions are still in the house when the bailiffs arrive they will be removed and left outside the house.
10. Be careful about companies who offer to buy your home and rent it back to you
These schemes are variously known as "flash sale" "mortgage rescue" "rent-back" or "sell it to let". It is important to note that these arrangements are not yet regulated by the Financial Services Authority though the Government is looking into this possibility. This means that you are unlikely to have access to traditional complaints and compensation procedures if things go wrong. If you opt for this sort of scheme and you no longer own your own home then you could still be evicted if you fall behind with your new rental payments. In addition most of these firms will pay you less than the market value of your property.
11. Where to get Advice
The Financial Services Authority has an advice booklet called "What to do when you cannot pay your Mortgage". You can download a copy via www.moneymadeclearfsa.co.uk./pdfs/mortgage_cantpay.pdf Anyone struggling with the cost of their mortgage or any other housing problems should go to http://www.shelter.org.uk/ or call a free housing advice line on 0800 8004444. Other organisations who may help are http://www.jobcentre.plus.gov.uk/ http://www.payplan.com/ or Mortgage Helpline on 0800 9177819 http://www.nationaldebtline.co.uk/ on 0808 8084000 http://www.citizensadvice.org.uk/ or http://www.adviseguide.org.uk/.
You may also seek advice from The Consumer Credit Counselling Service at http://www.cccs.co.uk/ or 0800 1381111. Alternitively call The Federation of Independent Advice Centres on 020 74891800 or contact The Centre for Mortgage Arrears and Repossession Counselling on 0800 1381111