What Are the Reasons a House Can Be Repossessed and How Can You Stop It?
Tuesday, December 18, 2018, 6:00 AM | Leave Comment
House repossession is any homeowner’s worst nightmare. This is where a mortgage lender or other loan provider starts the legal process to take possession of your home.
If successful, they will then sell it at the best price possible in order to recoup any outstanding debts that you owe them.
It’s obviously in your best interests to avoid this – after scrimping and saving to buy a house, the last thing you want is to lose everything you’ve worked for.
There are a number of reasons that repossession might occur. TIC Finance have put together the following guide which covers the main reasons for house repossession, as well as some helpful tips on how you can stop the process and regain financial control.
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Mortgage Arrears
This is the most common reason a house is repossessed. The majority of people take out a mortgage to buy a house, but if you fall behind on your payments your lender will not be happy.
Once you’re in arrears, your lender has every legal right to start the repossession process if you don’t bring your payments up to date.
However, generally a court will only allow this as a last resort if all other steps have failed – creditors have to give you a chance to pay the money back.
If you’re having a tough month financially and finding it hard to make your mortgage payment, the best thing you can do is to let your lender know that you’re likely to miss the payment. This gives them the chance to set up an alternative payment plan, and you can also make your own suggestions on how you plan to manage the debt.
Creditors are legally required to consider your proposals and respond to them, so at the very least you will buy yourself more time.
Plus, if the repossession process does begin, it reflects better on you that you’ve stayed in touch with your lender and tried to come to a solution.
The absolute worst thing you can do is ignore communications and payment demands from your lender – the situation can only get more dire if you do this.
On the other hand, co-operation could buy you months of extra time to get your finances in order.
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Bankruptcy
If you have high levels of debt and no way to repay your creditors, you may have to declare bankruptcy. In this case, your home may be repossessed and other assets seized to pay off some of your debts.
After a few years, any outstanding debts will be written off. However, it will be very difficult to get credit in the future if you go bankrupt.
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Secured Loans Arrears
Secured loans are often taken out to pay for a second mortgage, or in order to cover the costs of house refurbishments and repairs.
Secured loans offer lower interest rates because they are secured against the value of your home. However, this means that if you fall behind on payments the lender may seek repossession and you could lose your home.
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Strategies to Avoid Repossession
The repossession process is often lengthy, difficult, and expensive for all parties involved. Therefore, it’s normally in both yours and the lender’s best interest to come to an alternative solution.
Here are a few ways that you can manage debt and prevent your home being repossessed:
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Changing Your Mortgage Terms
Your lender may agree to make repayments more manageable for your circumstances, for example by:
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Extending your mortgage term so that monthly payments are lower.
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Allowing you to switch to interest only payments for a while.
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Letting you take a repayment holiday.
These solutions may also apply to secured loans.
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Taking on a lodger
Renting a room to a lodger or tenant will increase your income, and you can use this additional money to pay off part of your mortgage. Furthermore, the government’s Rent a Room scheme grants a helpful tax exemption if the room is furnished and in your main home. Up to £7500 a year will be tax free under this scheme.
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Bridging Loans & Repossession Loans
Bridging loans and repossession loans are short term loans that will allow you to settle your debts. If you have a good credit history and a plan to clear debts in the near future, this can be a good option and prevent you from losing your home. For instance, if you’ve recently become unemployed and will get a new job soon, a bridging loan can help you make up the shortfall.
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Sell Your Home
Although this may seem like the worst case scenario, it may be worth cutting your losses and selling your house to pay off your debts. This will allow you to avoid all the additional costs and fees that come with repossession, which may include legal and auction fees. These additional fees can put you in a position where if your lender sells your home, it’s possible that you’ll still have unmanageable debt remaining afterwards.
