What steps can you take to prevent your home being repossessed?

According to UK Finance, over 750 homeowner-mortgaged properties were taken into repossession in the first quarter of the year, a 50 per cent increase on the previous quarter.

More than 2.4m fixed-rate mortgages are due to expire by the end of 2024, and with rates skyrocketing, it is likely to be a challenging time for many homeowners. 

The threat of repossession can be stressful, but getting early legal advice can give you the best opportunity of resolving the matter with your mortgage company.

As part of our mortgage crisis series, we look at some of the steps you can take to help prevent your home from being repossessed.

What is house repossession? 

House repossession is a legal process through which a lender or mortgage holder takes possession of a property from the homeowner. 

When you take out a mortgage to buy a property, that lender effectively owns a financial stake in your home. This decreases over time as you pay off the debt. 

However, if you begin to miss repayments, lenders have the right to initiate repossession proceedings to recover the outstanding debt. Repossession usually occurs after three or more consecutive missed payments. 

The process of house repossession involves court action and possibly bailiffs attending your property to evict you. The Mortgage Repossession (Protection of Tenants etc.) Act 2010 s.1(2) gives courts the power to postpone an order for delivery of possession for up to two months. 

Under s.2(2) of this Act also requires the lender to give notice of the proposed execution of the possession order. The repossession process is costly for lenders, making this their last resort. 

Mortgage lenders must comply with the Financial Conduct Authority (FCA), which sets out clear standards around how they are allowed to handle customers. This is called the Mortgage Conduct of Business (MCOB). 

Under MCOB, lenders cannot dismiss any suggestions for repayment or resolution of the situation. They must consider all reasonable attempts to deal with arrears. 

It is important not to ignore any letters and to let the lenders know your situation as early as possible to negotiate a way to catch up on your arrears and avoid house possession entirely. 

Selling your home yourself

Selling your home yourself allows you to take control of the sale and plan for your future. It may help pay off your mortgage and possibly any other debts you may have. As well as this, if you have money left over, you could put a deposit down for buying a new home or use it for paying rent. 

However, there are a few things to consider before taking this option:

• Is your home in a sellable condition?
• Are all your legal papers up to date? This includes Land Registry Title documents, Energy Performance Certificate (EPC), Property Information forms (TA6), Fittings and Contents form (TA10) etc.
• How much will it cost to sell?
• Any possible debts which may arise if your house sells for less than expected.
• Changes in the housing market could affect how long a sale takes.

You should be aware and try to avoid quick sale companies. This is because there is a higher chance your home will be sold for less than it is worth. Getting your home properly valued before selling is recommended so you know you are getting the best value. 

What to avoid

Voluntary repossession is when you give up your property to your lenders. This will allow your lender to sell your home. Once they have regained ownership, they will sell the property to recover the debt. 

However, until they sell the property, you still will be required to pay your mortgage. Your lender may sell your property for less than it is worth, which means you will have to pay back the difference if it does not cover the money you owe. 

As well as this, there is no profit for you compared to selling your property yourself. Voluntary repossession can affect your benefits, credit rating and options if you need housing help from the council. 

Buy-to-let properties 

Buy-to-let mortgages are different to residential mortgages as the FCA does not regulate them. 

Landlords may face problems such as:

• The tenants stop paying the rent
• The tenants move out, and the landlord cannot find new tenants
• The need to pay for unexpected repairs to the property

Once the income stops, the financial difficulties could build up in a very short period of time. Some courts may also take a stricter approach to buy-to-let properties when it comes to repossession. 

It is possible the landlord may be required to contribute towards the arrears. This amount can go over and above what they received in rent. However, there is no fixed rule here. The landlord must explain why the arrears were built and show what they are doing to clear them. 

If the landlord gives up the property to the mortgage lender, the property will then be sold. However, until the property is sold, interest will generally continue to be charged on the buy-to-let mortgage. It is important to consider having backup funds for any possible loss of income before taking the buy-to-let route. 

How interest rates influence repossession 

Higher interest rates increase borrowing costs, resulting in higher monthly mortgage payments. There are many different types of mortgages that have different interest rates. If a homeowner is already struggling to meet their mortgage obligations, a high-interest rate can make it even more challenging to avoid repossession. It is essential to carefully consider the affordability of mortgage payments when interest rates rise. 

When interest rates are high, refinancing your mortgage at a lower rate can help reduce your monthly payments and make them more manageable. Refinancing a loan involves replacing your existing mortgage with a new one. By refinancing, you may be able to secure a lower interest rate and extend the loan term, which can ease financial strain and reduce the risk of repossession.

Communication with your lender is key. If you anticipate difficulties meeting your mortgage obligations due to high interest rates, communicate with your lender as soon as possible. 

By explaining your situation, you may be able to discuss alternatives and solutions. You can explore the option of a loan modification with your lender. Loan modification involves negotiating new terms with the lender to make the mortgage more affordable. This can include lowering the interest rate, extending the loan term, or adjusting the monthly payments to prevent repossession. 

There is also budgeting and finical management. In a high interest rate environment, it becomes crucial to manage your finances carefully. Creating realistic budgets that account for your mortgage payments and other essential expenses goes a long way. 

Reduce discretionary spending, explore ways to increase your income, and consider seeking professional financial advice to improve your overall financial situation.

It is vital to act promptly and proactively when facing potential repossession. Exploring options to mitigate the impact of high interest rates and seeking assistance from professionals or housing counselling agencies can greatly increase your chances of avoiding repossession and finding solutions that work for your specific circumstances. 

Contact our solicitors

The threat of home repossession is a stressful and serious situation, but getting early legal advice can give you the best opportunity of resolving the matter with your mortgage company.

Our specialist solicitors can offer legal advice for individuals across various areas, such as selling property, remortgaging property, and property litigation. 

Whether you are a first-time homeowner or a landlord with a large buy-to-let portfolio, our team is here to help.