Taking Expert Advice
To avoid repossession, professional financial advice is almost invaluable. Even if the lender has already started possession proceedings, an experienced advisor will know how to help at this worrying time.
When a mortgage is in arrears, it is advisable to maintain communication with the lender and, figuratively, to not bury one’s head in the sand. Above all, beware of the idea of handing the keys back. Take expert advice beforehand; such action severely affects future credit status.
What Does Arrears Mean?
Technically, loan payments – including those for mortgages on residential properties – are overdue or in arrears from the day after a missed payment. Nevertheless, some lenders allow a grace period of up to fifteen days before contacting the borrower(s) concerned. For some people, this unofficial concession might be enough to get around temporary, one-off cash flow issues. In contrast, if the financial problem is more serious, a two-week breathing space is unlikely to resolve the outstanding amount.
How Many Months Before Repossession?
Possession proceedings are the official term for repossession. Although lenders are usually entitled to take action from the outset, many of them see it as a last resort. In other words, banks, building societies and other mortgage finance providers do not usually want to initiate legal action unless they have to. In most cases, three months of missed payments are a trigger point, but the delay can be longer.
Making Smaller Payments
If you have not already examined your domestic income and outgoings in detail, make time to go through household expenditure with a fine toothcomb. If possible, we recommend making a small payment towards the arrears. Even if relatively small, regular amounts demonstrate reliability. In such cases, lenders will see that owner-occupiers who are encountering financial problems are still acting as responsibly as possible and making the mortgage a priority.
It is essential to have a workable plan and have it ready before seeing the lender. Significantly, under the terms of an official protocol for mortgage arrears, financial institutions must allow entitled borrowers enough time to claim benefits or mortgage interest support, as well as an option to reschedule the payments.
Claiming on Insurance
If you have insurance, particularly MPPI (mortgage payment protection insurance), the policy terms might allow you to make a claim. Such insurance policies usually cover redundancy, accident or illness, although sometimes there is an initial waiting period depending on the insurer and the cover options originally selected.
Changing the Monthly Payments
You might be able to change the type of mortgage or the number of years that it has left to run. However, this change is usually easier to achieve before an account goes into arrears. Alternatively, some types of mortgage allow the mortgagor (i.e., the borrower) to take a payment holiday.
Obtaining Support for Mortgage Interest
For those who are entitled, government-run mortgage interest support covers the interest part of monthly payments. Previously a benefit, the amounts received are now, in effect, a loan that the state recoups on the eventual sale of the property. SMI is available after 39 weeks, or straight away for people who receive pension credit.
Additionally, it is a good idea to find out about possible entitlement to other state benefits and tax credits. Any new source(s) of income will lighten the load, increase general household income and help to balance the monthly budget.
Renting Out or Selling the Property
If there is other accommodation in which you could live, renting the mortgaged property out could be a feasible proposition. However, some banks and building societies charge higher rights of interest when tenants live in mortgaged properties.
Instead, a quick sale may prove to be the best option overall. Depending on your housing needs and if circumstances permit, this option could lead to a better outcome over time – even if it involves some inconvenience at first. By selling, technically, you would not have defaulted on mortgage payments, or at least for long. Maintaining some control is advantageous; sales by owner-occupiers tend to secure better selling prices than forced disposals at public auctions.