| House Repossession Guide
It is the one letter that no homeowner ever wants to have to open – the one from the bank threatening home repossession.
Unfortunately, over the last few years, home repossessions in the UK have risen to an all time high, partly due to record house prices and partly due to an increase in consumer debt. The population of the UK has an estimated 1 trillion pounds in debt, including mortgages, credit cards and other loans.
Around 8,000 homes were repossessed in the first six months of 2006 alone – an increase of around 20% over the previous year. The CML (Council of Mortgage Lenders) estimated that this figure would reach 12,000 per year during 2006 and 2007. Not surprisingly, home repossessions are most common in and around London where house prices are at their highest.
Most homeowners are familiar with the term, but many don’t have an accurate idea of what it means. Basically, under the terms of your mortgage, your bank, building society or lender has the legal right to take your house from you if you don’t pay back the loan. Repossession is not necessarily a speedy process - usually, your lender will go through the local County Court to start proceedings.
If you miss just one mortgage payment, or just get a little bit behind on your payments, you are not going to have your home repossessed. In fact around 750,000 homeowners miss at least one mortgage payment in an average year and in 2005, around 30,000 homeowners were between three to six months behind with payments.
For your bank to take repossession action, you usually need to fall at least a couple of months behind with payments. And before they do anything, they will write to you or ring you to talk about the situation. If you do receive a repossession order, it doesn’t necessarily mean your home will be taken from you – you may still have time to come to an agreement over the debt. Some people have several orders without actually having their home repossessed.
If you do get behind with your payments, financial experts advise that the first thing to do is to ring your lender and explain the situation. Be honest and realistic – most High Street banks would rather resolve the problem than have to spend time and money on repossessing your property.
The drawbacks of having your home repossessed are all too clear. Apart from the emotional devastation and being homeless, repossession means that your credit rating will seriously suffer – and you may find it difficult or more costly to obtain loans in the future.
If a home is repossessed, the owner almost certainly won’t receive the full value of their house. When banks repossess a home, they then try to sell it as quickly as they can for whatever they can get. When home repossessions are sold at public auction – as many are - they tend to be undersold by between 20 to 30%. About 35,000 properties are sold at auction in the UK each year.
If your house isn’t sold for an amount sufficient to pay off the remaining mortgage balance, as well as any fees and interest, you may still be left with a substantial debt, which your lender will expect to be paid off. And if your home is repossessed, you are still responsible for ongoing property costs such as estate agent’s fees, legal fees and interest on your mortgage.
And apart from the expense of the repossession process, once your home has been sold, you then have the added problem of having to find somewhere to live. Your credit rating and ability to take out a loan will also have suffered during this time. One solution that an increasing number of people have found is to sell their property and then rent it back, therefore solving both financial and accommodation problems.
Repossession is a word that no homeowner likes to hear. However, for many people, it may be the only solution to a financial crisis or a sudden job loss. Repossession shouldn’t be seen as the end – rather, a new beginning as many people, once they have made the difficult decision, are able to move on.
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