Almost a year on from the first confirmed cases of COVID-19 in the UK, the pandemic continues to wreak havoc on the economy. The rate of unemployment is rising as businesses are forced to cut jobs and many homeowners who have relied on a mortgage holiday to stay afloat will soon reach the six-month limit — the scheme had been due to end on 31 October, but borrowers can now continue to defer payments up to six months. While there is alternative support available and those who have not yet taken advantage of deferred payments can start their six-month holiday now, banks are predicting a rise in the number of people defaulting on their mortgage.
In this 2020 guide, our property experts will help you to understand what happens when you fall into mortgage arrears and how to stop repossession of your home.
How Many Missed Payments before Repossession Is a Risk?
Technically, a homeowner falls into “arrears” as soon as they miss a mortgage payment. However, the majority of lenders allow an unofficial period of 15-days before they get in touch to find out what’s going on. Even then, a repossession will not be the lender’s first course of action. It makes much more sense for a lender to help you get back on track — if this is possible — than to go through the time-consuming and costly process of “possession action”, i.e. repossessing your property.
Furthermore, the Financial Conduct Authority (FCA) — the regulator of all mortgage lenders — requires compliance with their Mortgage Conduct of Business (MCOB) rules. These rules apply to any mortgage contract that commenced after 31 October 2004 and stipulates that a lender must only seek repossession of a customer’s home after all reasonable attempts to resolve the situation have failed.
Most lenders will not consider starting repossession proceedings until at least three payments have been missed. Some will be more lenient if the homeowner can show they have plans in place to clear their arrears and resume regular payments.
Am I Protected by the COVID-19 Moratorium on House Repossessions?
In March, the FCA introduced a moratorium on house repossessions in response to COVID-19. The moratorium served to protect borrowers and allow them to comply with government guidance on social distancing and self-isolation. In June, the FCA extended the moratorium to seven months and prohibited lenders from starting repossession proceedings against any borrower before 31 October 2020.
The moratorium no longer protects borrowers.
Approximately 1.9 million people (one in six borrowers) took advantage of mortgage holidays, allowing them to defer payments for up to six months. As these holidays and the moratorium come to an end, homeowners will have to resume monthly payments or face repossession.
What Is the House Repossession Process?
- The lender will contact you. If you’re more than 15-days late making a monthly payment, the mortgage lender will get in touch to find out what the problem is. Lenders must comply with the Pre-Action Protocol for Mortgage Arrears, which requires them to notify the borrower that they are in arrears and allows them to rectify the situation.
- The lender should help you find a solution. The FCA requires mortgage lenders to treat borrowers fairly. The lender must work with you to find a solution to your financial situation and exhaust all reasonable avenues of support before starting the repossession process. This might include a “repayment plan” whereby the lender agrees to accept reduced payments for a fixed period or to permit a short respite from payments altogether.
- The lender will take “possession action”. This marks the official start of the repossession process. The lender will apply for a “possession order” and send you paperwork regarding the proceedings.
- You must attend the hearing. If the case goes to court, the homeowner must attend. Failure to present yourself at court could result in an outright possession order — when the court grants your lender the right to repossess your home.
- The court makes a decision. If an outright order is issued, you must vacate the property within four weeks. A suspended order allows you to stay in your home, provided you comply with the schedule of payments provided — this will stipulate a fixed amount above your regular payments until the arrears are cleared.
If you fail to comply with the terms of an outright or suspended court order, bailiffs may be granted permission to evict you.
Once the repossession process is complete and you have left the property, the lender will proceed to sell your home. They are entitled to recover the remaining balance on the mortgage in full, not just the arrears. The lender can also charge interest on the mortgage debt until the property sells and recoup any selling costs incurred. If there is any money left from the proceeds of the sale once all of these costs are covered, this will be returned to the borrower.
How to Stop the Repossession of Your Home
- Talk to your lender. As soon as you begin to experience financial difficulties and miss a payment, contact your lender. Ignoring the problem will not make it go away and the sooner your lender is aware, the sooner they can help you.
- Cut unnecessary spending. Keeping a roof over your head is more important than an expensive satellite TV package or a gym membership. Evaluate your monthly income and monthly outgoings and identify any cuts you can make, even if just for the short term.
- Seek professional advice. Several organisations offer free debt management advice, such as Citizens Advice, National Debtline, Shelter and your local council. The pre-action protocol requires a lender to cease — or pause — court action if you need time to seek independent debt advice or are awaiting a confirmed appointment.
- Work out a repayment plan. Assess your finances and decide how much you can pay each month until your financial situation improves. Agree on a repayment plan with your lender that reduces the monthly payment for a fixed period.
- Sell your house. If your financial situation is unlikely to improve within a reasonable amount of time, selling your house may be the best option. The more debt that accrues — either from failing to make payments or reduced payments when you know you can never return to the standard monthly payment — the harder it will be to recover. If your house is repossessed, this will also affect your credit rating, which could make it difficult to get a mortgage in the future. A house repossession will stay on your credit report for six years from the date of the first missed payment. Selling your house could provide sufficient funds for you to cover the cost of your mortgage, repay the arrears and leave you with money left over to start anew.
Nobody wants to face repossession of their home, but if you find yourself struggling to make your monthly mortgage payments, the best course of action is to face the problem head-on. Be honest with your lender and be realistic about your financial situation long-term. Securing a quick house sale could be the best solution and one that leaves you with cash-in-hand to make a new start.
House Buyer Bureau is a transparent and honest house cash buyer. We will discuss your options with you and provide a fair cash offer for your home. If we do not think our service is the best choice for you, we will say so. We’re proud of our reputation as one of the best quick house sale companies in the market. House Buyer Bureau is one of only a handful of buyers recommended by The Advisory, the independent authority on everything related to house selling.