Updated Jan 2021
Could you be facing the repossession of your home in 2021? On August 12th 2020, Chancellor Rishi Sunak announced that the UK is officially in recession for the first time in 11 years. The government’s coronavirus Job Retention Scheme has provided 9.6 million workers with furlough pay since it began in April last year, and as the global pandemic continues to wreak havoc on the economy, the scheme was recently extended until April 30th 2021.
When this funding finally comes to an end, it could trigger a spike in unemployment figures as companies are forced to make staff cuts. The Office for Budget Responsibility (OBR) estimates the joblessness rate will reach 7.5% in the second quarter of 2021. With that in mind, an ensuing increase in the number of people facing repossession of their homes seems almost inevitable.
As the economy struggles to recover from the impact of the global pandemic, many people will find themselves out of work and unable to make their monthly mortgage repayments. In this blog, we’ll take a look at what you can do to avoid repossession of your home if your employment and financial situations change unexpectedly.
What Is “Repossession?”
Most homeowners take out a mortgage to buy a property. Until this loan is repaid in full, the lender owns a proportion of the property. Mortgage repayments are charged monthly until the balance is cleared.
If a homeowner misses a mortgage repayment, they are in “arrears.” If it is not possible to find an interim solution that helps the homeowner get back on track with payments, the mortgage lender is entitled to initiate court proceedings to take back — or “repossess” — the property. If your home is repossessed, bailiffs will evict you from the property, and you will have to find somewhere else to live.
The lender is then entitled to sell the property for whatever price it can reasonably achieve, either via an estate agent or an auction. Once a court order for repossession is in place, you will no longer be liable for mortgage repayments, but you could still be charged interest on the remaining balance until the property sells. The lender is responsible for maintaining the property, but it can charge you for the cost of any essential repairs.
When the property sells, the lender will use the process to cover the cost of your outstanding mortgage balance and any costs associated with the sale — legal costs, repairs, estate agent fees, etc. If there is any money left over, the lender will pay this to you. If there is a mortgage shortfall — meaning that the proceeds of the sale do not cover the outstanding debt — you will still owe money to the lender or insurer unless it chooses to write off the debt.
The House Repossession Process
Repossession is a last resort. If all other avenues of resolving your debt have been exhausted, the mortgage lender can pursue court action to recover the money it is owed. The repossession process looks like this:
1. The Homeowner Falls into Mortgage Arrears
Most lenders will allow a grace period of 15 days after the first missed mortgage payment before making contact to find out what the problem is. If you pay the money that’s owed within this time, there will probably not be any penalties to pay.
Contact your lender as soon as you fall behind on payments.
2. The Lender and the Homeowner Try to Find a Solution
Mortgage lenders are regulated by the Financial Conduct Authority (FCA), and they must abide by the FCA’s Mortgage Conduct of Business (MCOB) rules. Under these rules, a lender should only start court action to repossess a property when all reasonable attempts to resolve the situation have failed. The purpose of repossession regulations is to ensure that lenders treat borrowers fairly.
If you miss a payment, talk to the lender about your situation and negotiate a repayment plan. This might involve delaying interest payments, extending the mortgage term, switching to a different type of mortgage or adding the arrears to your total debt.
3. The Homeowner Is Allowed Time to Sell the Property
If it is not possible to find a solution by implementing any of the measures outlined above, the homeowner must be allowed time to sell the property.
Selling a house on the open market can take months or even years depending on the type, condition and location of the property and the health of the housing market. With the threat of repossession looming, many homeowners find waiting for a buyer extremely stressful. Selling to a quick house sale company will speed up the process and allow the homeowner to repay their debts and make a fresh start.
4. The Lender Pursues a Court Order
If all attempts to establish a repayment plan have failed and the homeowner has been unable to sell their property after a reasonable period, the lender will apply for a court order to repossess your home. The court order will include the reasons for the repossession.
The government website outlines the steps a lender must follow before starting repossession proceedings. These steps include considering proposals for remedying the situation and providing 15 days’ notice before starting court action.
5. The Repossession Court Hearing Takes Place
Ahead of the court hearing, you will receive a “defence form”, which you can use to give your reasons why the lender should not be permitted to repossess your home. You will also be notified of the date and time of the repossession hearing.
You must attend the hearing, and this is your opportunity to explain why you have missed payments and to demonstrate your efforts to rectify the situation. The judge will make a decision based on the evidence given by you and the lender.
6. A Possession Order Is Issued
If the judge rules that the repossession cannot go ahead, you will be asked to sign a new repayment agreement. This will take your current financial circumstances into account. If you fail to keep up with this amended agreement, the lender will be allowed to evict you.
If the judge rules that the lender is entitled to repossess your property, you’ll be given between 28 and 56 days to leave your home (28 days is the most typical). The losing party (you) is liable to pay the court costs, and these are usually added to the balance owed to the mortgage lender.
7. Bailiffs Evict the Homeowner
If you do not vacate the property within the time granted by the judge as part of the possession order, bailiffs will come to your home and evict you by force. You will receive written notification of when this will take place.
There is no fixed procedure for evicting the owner of a repossessed property — the bailiffs may call at any time, and they are not told what to do or say. However, they must act reasonably. A representative of the mortgage lender will also be present to collect the keys to the property.
8. The Lender Sells the Property
As soon as you have vacated your home and the lender has the keys to the property, it will start trying to sell it and recoup the money it is owed.
Any money left over from the sale after the lender has been repaid will be returned to you. However, interest will continue to accrue until the house is sold, and this will be added to your debt. If the sale price does not cover the amount you owe the mortgage lender, you will have to pay the difference.
Will I Be Able to Get Another Mortgage If My Home Is Repossessed?
A home repossession will affect your credit rating for seven years from the date of the first missed payment (the “original delinquency date”). If your financial situation improves and you want to buy another property by taking out a mortgage, you may be deemed too high a risk by some lenders.
However, having a property repossessed does not necessarily mean that you will never have a mortgage approved in the future. A lender will assess the risk you represent based on how long ago the repossession was, the amount of money you owed and the reason for the repossession (it may deem redundancy or a change in the property market to be a more acceptable reason than, say, excessive gambling). Generally, mortgage companies will look more favourably on borrowers who fell into arrears due to circumstances beyond their control.
How to Avoid Repossession of Your Home
If you fall behind with mortgage payments, being proactive and honest is the best way to avoid repossession of your home.
1. Speak to Your Mortgage Lender
Mortgage lenders are regulated by the Financial Conduct Authority. They must follow the FCA’s Mortgage Conduct of Business rules, which require lenders to make reasonable attempts to help a homeowner overcome their difficulties in making mortgage payments. Repossession should only be sought as a last resort if all attempts to resolve the situation have failed.
Speak to your lender immediately if you’re struggling to make your monthly mortgage repayment — it has a responsibility to help you. By avoiding the problem, you could lose precious time that could be spent getting back on track with payments. Work with your lender to review your monthly income and outgoings, prioritise debt and create a “repayment plan.” Your mortgage lender may be willing to accommodate various alternatives to repossession — such as delaying interest payments, extending the mortgage term, switching you to a different type of mortgage or adding the arrears to your total mortgage debt. All of these options will reduce monthly payments for a fixed period, giving you breathing space to resolve any short-term financial difficulties.
2. Get Some Professional Advice
Several organisations offer free legal advice for people facing repossession of their homes. You can access the government’s Civil Legal Advice service if you’re eligible for legal aid. There are also charities — such as Step Change and Shelter — that can help you access and understand the information you need to address your financial situation and the repossession of your house.
3. Identify Sources of Financial Support
Homeowners are required to take out certain insurances when they commit to a mortgage, such as building and contents insurance. Many people choose to opt-in for additional cover, such as income protection insurance. If it’s been a while since you set up your mortgage, there may be support available that you’ve forgotten about or are unaware of. Check your insurance policies to see if you’re eligible to claim any financial support — to cover lost income, for example.
Contact the local benefits agency to see if you qualify for any additional support. You could be eligible for Reduced Earnings Allowance if your work hours have been drastically cut. Support for Mortgage Interest (SMI) is available to some homeowners, and this could reduce your monthly payments for a fixed period by covering some of the interest.
4. Rent Out Your Home
If you have friends or family who you can stay with, consider renting out your home. The rental income should be enough to cover the mortgage and give you time to improve your financial situation so that you can eventually return to the property and resume repayments.
If you do not have anywhere temporary to stay rent-free, taking in a lodger may provide enough of an income boost to help you cover the mortgage repayments. When you can afford to do so, you can always revert to sole occupancy.
5. Sell Your House Fast
For homeowners that are experiencing short-term financial hardship, the steps above could provide the support they need to get back on track and avoid repossession of their homes. If your financial situation has changed permanently and short-term support will not be enough to enable you to make ongoing monthly mortgage payments, the best option is to sell your house fast.
House Buyer Bureau can make a cash offer almost immediately, and we have the funds to offer a quick sale — we can complete your sale in as little as 7 days. There are no valuation, estate-agent or legal fees to pay. The cash offer will be slightly below market value, but you’ll avoid repossession and stop further debt building up. If the sale price is sufficient to cover the amount you owe the mortgage company, you can walk away with any remaining funds and start anew.