Property repossessions may occur as a last resort if you have missed multiple mortgage repayments. However, there are many different steps that need to happen in order for there to be a repossession of property. If you are worried about not meeting your monthly mortgage repayments, take action early before things escalate and avoid the possibility of your home being repossessed.
Read on to find out what property repossession is, how it works and how you can avoid this by following some of our simple steps and advice!
What Is a House Repossession?
A house repossession occurs as a worst case scenario if you miss your mortgage repayments. If you take out a mortgage to buy a property, you are putting your house forward as collateral. This means that the lender has a financial stake in your home – the amount of which decreases over time as you pay off more of the mortgage off. If you miss repayments, mortgage lenders could take back possession of the house and sell it to recover the money they have lent you. As a worst case scenario, your mortgage lender could secure a court order to take over the possession of your home.
House repossession is always a last resort and there are many steps that occur beforehand. Before the repossession, there will be court action and bailiffs coming to your house in order to evict you. Your lender will only evict you from your property after multiple missed payments (usually 3 or more). Lenders will typically try to arrange an alternative repayment plan beforehand in order to clear any owed debts. However, if you work with a lender who finances high-risk candidates (borrowers with a risky borrowing profile), they might be able to repossess your home after fewer missed payments.
What Happens If Your House Is Repossessed?
Ultimately if your house is repossessed, you will be left without a home. In some cases, you may even owe the debt once the house is repossessed. If your home is repossessed, this may make it more difficult to get a mortgage in the future as well as securing other types of personal loans, such as car or business loans. Generally, a house being repossessed is the last and final stage if you miss or avoid mortgage repayments – so, it is best to avoid this.
Stages Before a House Is Repossessed
If it seems that your house is going to be repossessed, you should always try to offer reasonable ways to repay your debt and negotiate with your lender to work out an alternative repayment plan. Repossession should always be a last resort. However, before reaching that stage, there are lots of steps that happen before lenders repossess a home:
Your mortgage lender will only entertain the possibility of repossessing your house if you have continually missed payments. But before they reach that stage, they will first make an attempt to contact you about your missed payments. At this stage, you should share your circumstances with your lender and see if you can negotiate. Try to agree on a repayment plan that is agreeable both you as the borrower and your direct lender.
If the lender does not accept your proposal, you will be issued with a second warning. This warning should outline the lender’s plan to begin court action which would set in motion the repossession of your home.
If you are unable to renegotiate a mortgage repayment plan, your mortgage lender could apply for a court order to repossess your home. In this court order, it will detail why a judge should grant the lender legal possession of the property. Court orders cost £325 to submit so it is likely that lenders will only take this step if you are unable to reach a negotiation. In some cases, if the lender is not claiming rent arrears, they might apply for an accelerated possession order which would mean that they could evict you even sooner.
If the court order goes through, you will receive a date for your case to be heard in court. You must attend this hearing if you want the opportunity to explain to your mortgage lender and the judge why you have missed your repayments. It is also your opportunity to propose any negotiations. Often, lenders will win these court cases by default simply because the borrower has failed to turn up so it is always better to appear in court.
During the court hearing, the judge will evaluate any evidence provided by both the borrower and the lender. Any suggestions you have made throughout the process, or efforts you have made to remedy your house repossession, should be made in writing so that you can use them as court evidence.
In the case that the judge grants the proposed possession order by your mortgage lender, you will most likely be given a 28 days notice during which you will need to vacate the property. This could be up to 56 days in certain cases. In addition to your outstanding debts, you will need to pay the court costs.
If the judge rules in your favour during the court hearing, you will need to sign a new repayment agreement. You will only be evicted if you fail to stick to this.
Eviction will occur if you do not leave the property within the allotted time frame. If this is the case, the lender will apply to the court for a warrant to allow bailiffs to repossess your home by force and remove you. Before this happens, you will receive a written warning.
The House Is Sold
Once the mortgage lender has repossessed the property, they will sell the property in order to recover the debt owed. Until the point of sale, you will still need to pay the interest on what you owe. Once the sale is completed, the lender is entitled to keep any money that they are owed – if there is any money left over, it will be paid to you. However, if the property sale does not cover the amount of money that you owe, you will need to cover the remaining value.
How Can I Avoid House Repossession?
If you are worried about repossession of your property and meeting your mortgage payments, there are a few preventative measures you should take as soon as possible.
1. Speak to Your Lender As Soon As Possible
Contact your lender as soon as possible if you think you might be unable to make a payment. You may be able to explain your financial situation and reason with them. In many cases, you can renegotiate with them in order to avoid the situation escalating to the point of repossession. Write up a new mortgage proposal idea based on your current financial situation and see if they accept it. There’s no harm in trying.
2. Pay Towards Your Arrears
If you are unable to pay the arrears in full, you should still make some payment towards it, even if it is only a small amount. This shows lenders that you are making your mortgage repayment a priority and that you fully intend to pay it back at the earliest possible opportunity.
3. Rent Your Home
If you are facing house repossession, think about renting out your property or a room of your property in order to earn more money to put towards your mortgage repayment.
4. See If You Are Eligible for Financial Support
If the reason you are unable to pay your mortgage is due to unforeseen financial circumstances, you might be able to claim certain benefits based on the situation. For example, if you unable to earn money due to an accident or disability, you could be able to claim financial benefits from the government. Similarly, you may be able to claim insurance depending on the circumstances.
5. Try to Make a Quick House Sale
If you are unable to pay your mortgage and do not see the situation changing any time soon, you could try to sell your property quickly before facing repossession. While this might not be a favourable option, as you have already gone through the process of buying your dream home, it might be one to consider if all other options fail.