Ten tips to avoid repossession

At the start of the summer, more than 150,000 homeowners were at least three months in arrears. The number of repossessions is predicted to double this year to 45,000 and to keep climbing next year, according to the Council of Mortgage Lenders.

If you have slipped into arrears, you will not necessarily lose your home. Here are 10 steps that you can take to stay in your property and clear your debt.

1. Contact your lender
If your circumstances change, such as losing your job, contact your lender immediately. It might be willing to offer a repayment holiday of two or three months, which will give you the breathing space to make alternative financial arrangements.

2. Understand the new rules
Under the new rules announced in October, lenders should be more willing to lower your monthly costs temporarily or to increase the length of the loan term, which would also shrink the monthly payment. One way to lower costs is to switch to interest-only payments. Mortgage payments on a £150,000 loan with an interest rate of 6 per cent would fall by £217 a month by switching from repayment to interest-only.

3. Cut expenses and increase income
If you can prove that you will cut costs or increase your income, your lender is more likely to be flexible in its approach. You should cut out unnecessary expenses, such as satellite TV subscriptions or club memberships. There are also practical ways to raise your income. Mr Tapp points out that a recent client realised that she could make up the shortfall in her repayments by renting out a spare room to lodgers.

4. Contact free debt advisors
Debt charities, such as the Consumer Credit Counselling Service (CCCS) or the National Debtline, can help with a budget plan to use when renegotiating the terms of your mortgage.

Francis Walker, of the CCCS, suggests that it can be better to seek help from a debt adviser before approaching your lender with a proposal. She explains: “We often find that borrowers set up an agreement with a lender and then find that it is unaffordable. Customers are likely to say what they think is acceptable to the lender rather than what they can afford.”

5. Prioritise your debts
The most important thing is to stay in your home, so your mortgage repayments should be paid before other unsecured debt, including personal loans or credit cards.

If you need to stop paying these debts temporarily, write to the loan or credit card company and explain your financial situation. It may be willing to suspend repayments if you can prove that you will be able to start repaying the loan again in the future.

6. Do not be bullied by your bank
If you have missed one or two mortgage payments, it is likely that your lender will have been in touch to talk about your financial situation. Lenders can apply pressure on borrowers to pay arrears quickly - and the failure to do so has been used as grounds for repossession.

However, Beccy Boden Wilks, of National Debtline, says that you will not be evicted if you can demonstrate that you can afford to make monthly repayments and a small amount of the arrears each month. She adds: “Your lender might push you to clear arrears in 12 months, but ask if you can spread the cost over the term of your loan.” You could also ask about adding missed payments to the loan, which is known as capitalising your arrears.

7. Be wary of sale-and-leaseback
Speak to a debt charity or financial adviser before considering sale-and-leaseback schemes, which are unregulated. This would involve the sale of your property to a company that would then keep you on as a tenant.

You could also contact your lender or local housing association about mortgage rescue plans, which work in a similar way to sale-and-leaseback.

8. Attend all hearings
If you do miss a number of monthly repayments, it is likely that your lender will write to you with a date for a repossession hearing. It is crucial that you attend, says Ms Boden Wilks, because if you can demonstrate to the district judge that you are able to make your basic repayments, the judge will support your case.

9. Request time to sell your property yourself
If there is no way that you will be able to afford your monthly repayments, request that you are given time to sell the property yourself.

10. Share your problem with family and friends
This could unlock useful help and advice, and reduce the pressure to keep up appearances. For example, friends in the know are less likely to suggest expensive nights out.

Useful contact details National Debtline: 0808 8084000, www.nationaldebtline.co.uk; Citizens Advice: www.citizensadvice.org.uk; CCCS: 0800 1381111.

More from Money Central:

Ten people who predicted the financial meltdown

House prices: the 10 worst performing streets

The 10 worst property investments ever

50 great things you can get free

50 tips to beat a recession

The 10 most decadent dictators

The world's 10 wealthiest politicians

The 10 stupidest taxes ever

The six safest places for your savings

The 10 craziest parking tickets ever

The 10 most ridiculous fines of all time

25 reasons to avoid the new iPhone

The 10 biggest stock market crashes of all time

Comments

[ToughLove]

Sadly, it is fecklessness more than anything that leads to reposession. I doubt many people in arrears will take good advice.

[Doundou Tchil]

Switching to interest only is bad advice. What happens when the mortgage falls due ? You get repossessed anyway despite paying all that interest. Interest only worked when people had endowments or pensions that paid well. Maybe there are those astute enough to gamble on long term investments but the sort of people who get into debt are not usually the ones who can maintain a long term investment plan.

[stephen omara]

You most logical one. Pay your debts. Buy what you can truly afford.

[Abc]

GET. A. JOB.

[In Place of Strife]

Mortgage lenders and homeowners can benefit from using mediation to find alternative solutions to repossession. Mediation is a cost effective and proven process in resolving disputes without the need for court action.

In my experience of property related disputes, mediated settlements are ideally suited to the current climate because they can be tailored to meet the different needs and circumstances of the people involved. There is a great deal at stake for both the financial institutions and individuals and families and the last thing anyone needs is to be focused on court actions when better and more cost effective solutions are available. Repossessing a home is rarely a satisfactory solution for the mortgage lender as the property then becomes their burden to sell in a distressed market.

[Nick Hharley]

I am with the Abbey and have a deal until end feb 2009 at base plus .39%, pretty good. As I am proactive, 6 weeks ago i was offered a base rate plus 1.09 tracker from Abbey for 2yrs. £759 fee at 75% LTV, I left it as rates were coming down.
I heard about Abbey putting rates up yesterday, 4th Nov. Phoned to check the situation, Now the computor said i only had a 79% LTV and the only choice now left, was a lifetime tracker plus 2% AND A FEE of £1499, unless i reduced my mortgage £10,000 to get a 75% LTV. This new offer will take payments from £770 TO £945, WITH INTREST RATES .5% LOWER THAN LAST MONTHS PAYMENTS. This is £2100 a year more plus a golden hello for the Abbey of £1499.
This is the best the Abbey can do for an existing loyal customer. 1-2yrs ago when things were good, the banks and customer shared in the benifits of low cost credit. Now they have caused this situation by getting into sub prime market, the simple answer is now anyone with less than 25% equity is not acceptable to any other lenders. Therfore we can charge them what we want as the borrower is trapped.
There have been statements going round by Abbey and other lenders that we are changing rates in line with other lenders and are still competertive.
The Abbey are market leaders and proberbly part of one of the best performing groups. They should leading the way as the sheppard not following like one of the sheep. The banks which decide to capture market share at the moment and treat existing customers well will do well and be rememberd for the right reasons and those that don't won't.

[Peter]

"3. Cut expenses and increase income "

Well Duh!

[paul]

If you owe more than the house is ‘worth’ (note: the house is worth what you can sell it for today at auction) then stay in the house while not paying a penny more in mortgage payments. It can take well over a year for the bank to get you out. Use the money you save by living rent free to pay off any secured debt like car loans or hire purchase. If you owe anything substantial on credit cards then you may as well stop paying them too and just go bankrupt. When the bank does eventually get you out you can rent a property while the housing market crashes around you. A house is worth 120 to 130 times its monthly rent. When house prices reflect that ratio again you will know that it is time to buy a house. By the way, a little known fact, if you have an item on hire-purchase that you have made more than half of the payment on then you are within your rights to just give it back to the lender and this doesn’t affect your credit. Also, bailiffs have no right to enter your house and take your possessions. You do not have to let them in.

[Mark]

Paul please tell me who is going to let you rent their house when you have a terrible credit rating? and how do they get a mortgage once they have this poor credit rating? the likes of you is what has got the country in this mess. Thanks for nothing.