When a homeowner falls behind with mortgage repayments, they are “in arrears”, which could result in their property being repossessed. Although being in arrears is stressful and worrying for the borrower, the route to repossession is generally not a swift one. The lender must allow the homeowner the opportunity to propose a solution and even if this fails, the court process can take time.
In this guide, we’ll review the process of repossession, how it works, when it might be triggered and how to avoid it.
What Does It Mean to Be “in Arrears”?
A property owner is in arrears as soon as they miss a monthly mortgage repayment. Although the term sounds worrying, it simply means your repayments are overdue. This could be by as little as one day or several months. Most mortgage lenders allow a 15-day grace period from the first day the payment becomes overdue before they will contact you to discover the problem.
Why Might a Homeowner Be in Arrears?
There are many potential reasons why a homeowner may start struggling to pay their mortgage. A mortgage lender undertakes strict checks before approving a loan. But sometimes personal circumstances change after the terms have been agreed and what was affordable at the time of application is no longer manageable. This could be due to changes in employment, illness, the breakdown of a relationship or many other reasons.
What Happens If I Miss One Payment?
If you miss your monthly mortgage payment, your lender will contact you within the first 15 days of the amount being overdue. However, you should get in touch with them as soon as possible; don’t wait for them to call. Most lenders will be keen to help find a solution to the financial difficulties you are experiencing.
Under the Mortgage Conduct of Business (MCOB) rules, mortgage companies are required to consider a borrower’s proposals for repaying the money owed and must only commence the repossession process as a last resort.
If repayment is problematic due to a temporary financial situation, work with the lender to agree to a “repayment plan” that allows reduced payments for a fixed period.
When Will the Repossession Process Start?
Mortgage lenders must adhere to the Pre-Action Protocol for Mortgage Arrears. This requires lenders to properly notify the borrower that they are in arrears and allow them to rectify the situation, or put plans in place to do so before the repossession process is triggered. There is no standardised period between when a homeowner falls into arrears and when the repossession process commences.
How Does Repossession Work?
If you’re behind with payments and have made no attempt to resolve your financial issues or your plan was unsustainable, the lender can start court proceedings to repossess the property.
If the case goes to court, the homeowner must attend the hearing. If they do not, there is a much higher chance of eviction.
There are several potential outcomes of a court hearing — not all of which involve the repossession of the property in question. If you’ve not attempted to improve the situation, the lender may seek a “suspended possession order”, which allows you to remain in your home if you continue paying off the arrears.
Sometimes the judge will “adjourn” the case until a later date. This typically happens if either party requires more time to gather information or take certain actions. For example, where a homeowner feels the lender has not complied by the MCOB rules and the lender has failed to respond sufficiently to this complaint, they have recourse to escalate the matter to the Financial Ombudsman Service (FOS).
The judge may “dismiss” or “strike out” the case if the lender has failed to prove they have a case for repossessing the property.
Finally, the judgement may be to issue an “outright possession order”. Under such an order, the lender can take possession of the property on a date set by the court.
How Can I Delay Repossession?
The pre-action protocol stipulates a lender must consider ceasing court action if any of the following circumstances arise:
- You are awaiting the outcome of a claim under a mortgage payment protection policy.
- You have an application for benefits such as Support for Mortgage Interest (SMI) pending.
- You have applied for help under a homelessness preventions scheme.
- You need time to seek independent debt advice or are awaiting a confirmed appointment.
- You are in the process of selling the property.
- You are in the process of making a complaint to the FOS about the lender’s conduct.
- You have a confirmed appointment with a debt adviser and expect your financial situation to improve imminently.
- You are negotiating a repayment plan with the lender, such as extending the term of the mortgage or switching to an interest-only mortgage.
What Can I Do to Avoid My House Being Repossessed?
If a lender applies for a possession order, the homeowner is still entitled to sell their home. At this point, securing a quick house sale — provided the owner has some equity in the property — can provide the capital necessary to clear the arrears and fund either the purchase of a more affordable property or a deposit for rented accommodation.
House Buyer Bureau has helped hundreds of homeowners to sell their homes fast. We can provide a quick cash quote and there are no estate agent fees to pay. We buy property in any condition or location and offer up to 90% of the market value.