The Financial Services Authority (FSA) is gravely concerned that many homeowners will face property repossession during 2009 and 2010. Statistics produced showed that 377,000 homeowners were struggling to clear mortgage arrears during the final quarter of 2008. The Council of Mortgage Lenders (CML) is anticipating that the number of families that are 3 or more months behind with repayments will grow to more than 500,000 by the end of 2009.
Why Does Property Repossession Occur?
Poor health, involuntary unemployment or a fundamental change of personal circumstances regularly leads to financial difficulties. Whilst those with unsecured loans can solve their money worries with an appropriate debt solution, this may not be possible for families with large debts that are secured on their home. Once a homeowner has mortgage arrears, property repossession is a genuine possibility so it is important to know how to prevent this from happening.
Discuss the Mortgage Arrears with the Lender
Lenders don't want property repossession to take place as it is a legally cumbersome and expensive process. Homeowners struggling with mortgage arrears should talk to lenders regarding the options alluded to below:
- A repayment holiday to give a homeowner time to get back on their feet.
- Increase the term of the loan to reduce monthly repayments.
- Switch from a repayment to an interest-only mortgage.
- 'Capitalise' mortgage arrears and add them to the total loan.
- Reach an agreement to repay the outstanding amount over a 12 or 24 month period.
Challenge an Unlawful Mortgage Agreement
There are many unlawful mortgage agreements that do not comply with the Consumer Credit Act 2006. If it doesn't comply, the borrower is entitled to compensation that could clear any mortgage arrears. Until the legality of the agreement has been established, property repossession can be blocked by a solicitor. Reasons for challenging a loan agreement include:
- An adverse mortgage has been sold to someone with good credit.
- The agreement terms are too one-sided in favour of the lender.
- Commission has been taken that isn't clearly visible in the agreement.
Prevent Property Repossession with a Sell and Rent Back
Individuals that are struggling with mortgage arrears may be able to arrange a sell and rent back, provided they have a minimum of 25 per cent equity available. This is not suitable for homeowners struggling with negative equity. Selling a house to a property cash buyer will prevent property repossession and allow the family to continue living there as a tenant.
Government Property Repossession Help
The new government Mortgage Rescue Scheme does not help a homeowner that is already in negative equity. The criteria are that a homeowner must earn less than £60,000 per year, be a family with dependent children or are caring for a vulnerable person. Assistance is available in the form of a loan from a Registered Social Landlord or a sell and rent back at a fair market price.
It is important that homeowners facing property repossession seek advice from a legal professional and a free debt counsellor. There may be ways to restructure personal debts so any mortgage arrears can be cleared.
Sources
Financial Services Authority (FSA)
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