Every mortgage is different, but all home loans are issued with the same warning:
Your property is at risk of repossession if you do not keep up with your mortgage repayments.
All of which can be quite intimidating, but repossession is only ever pursued by banks and lenders as a last resort. By understanding why repossession occurs and how it works, you have a much better chance of retaining ownership of your property, come what may.
Why Are Properties Repossessed?
Properties are repossessed by lenders to recoup their losses, in the event that a mortgage payer fails to meet their repayment obligations. Contrary to popular belief, a couple of late payments here and there (or even the occasional missed payment) is rarely grounds for repossession.
Banks will only seek to repossess the property when all other options have been explored and proven ineffective. Likewise, repossession proceedings will only begin when the debtor clearly has no capability and/or intention of repaying their home loan as agreed.
When Does Repossession Occur?
Mortgage providers in the United Kingdom are legally entitled to pursue repossession of properties when borrowers have been in arrears for 90-180 days. This typically gives the average borrower plenty of leeway, as it allows up to six months for those affected to get their finances in order.
In addition, banks rarely stick to this timescale, but instead handle each case on the base of its individual merit. Where well-intentioned mortgage payers hit temporary financial turbulence, a bank may wait significantly longer than this 90 - 180 days allotted time before commencing repossession proceedings.
When a bank decides to go ahead with the repossession of a property, they must first apply for permission from the courts for a possession order. However, it is the legal obligation of the lender to provide borrowers with at least 15 days’ notice before a repossession order can be enforced.
How Does the Repossession Process Work?
The basic logistics of property repossessions in the UK are as follows:
- Your Lender Contacts You
If you miss one or more mortgage payments, your lender will most likely contact you to discuss the issue. At this point, they will most likely demonstrate a decent amount of flexibility, providing you with additional time to repay the missing instalment if you are struggling financially.
They may also agree to restructure your loan to reduce your monthly repayments, or discuss the prospect of a temporary mortgage payment ‘holiday’ to enable you to get your finances back in order.
However, missed payments and late mortgage payments often result in penalty fees and additional charges becoming payable.
- Court Action is Commenced
Lenders will only begin court action if they deem it to be absolutely necessary, as doing so is a costly and time-consuming process. If there is any realistic way of avoiding escalation, including a full restructure of the loan agreement, it is typically preferable to taking things to the courts.
Where court action is commenced, your lender will send you a full report detailing your missed payment, your full outstanding loan balance, and your combined arrears at the time.
They will also make it clear to you that they intend to take the matter to the courts, unless you can repay your mortgage balance in full within a short period of time.
- Court Paperwork is Sent
Several forms and letters will then be sent to the debtor from the court, including notification that the lender has applied for a possession order and notice of a possession hearing once it has been arranged.
Under no circumstances is it advisable to ignore these documents, or to fail to comply with any demands they set out.
- You Attend the Possession Hearing
Likewise, it is extremely important to attend the hearing scheduled with the court. If you fail to turn up on the day, the court will rule in favour of the lender and grant them an immediate outright possession order.
If you cannot attend, you need to make sure you let the court know in advance and provide them with a valid reason. The date of the hearing can be postponed, but only with adequate notice.
- The Court Makes a Decision
Based on the documents submitted by the lender and the information you provide during the hearing, the court will make a decision. This could mean one of three potential outcomes:
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- An outright possession order, which sets a date by which you must vacate your home – often within four weeks of the hearing.
- A suspended order, where you can continue living in your property under specific terms set out by the court (including payments to your provider).
- Dismissal of the lender’s repossession request or an adjournment to a later date, if the case of the debtor is particularly strong.
There may also be the option of appealing against the court’s decision, which again depends on the strength of your case.
What Happens Following Repossession?
If your property is successfully repossessed by your lender, they will quickly move on to selling your former home. This usually takes place by way of a specialist property auction, rather than on the conventional property market.
Repossessed properties therefore typically sell for significantly less than their full market value.
The funds raised by the sale of the property are then used to repay the borrower’s full outstanding loan balance, plus any additional fees, charges and penalties incurred. If there is any money left over, it is passed on to the borrower.
However, it is also possible that the sale of the property will not cover the full outstanding debt in full. In which case, the debtor may need to make additional payments, even after their home has been repossessed and sold.
How Can I Avoid Repossession?
As with most things, it is easier to prevent repossession becoming necessary than to attempt to halt proceedings mid-way. But even when things appear to be hitting a crisis point, there are still plenty of options to explore.
One of which is to consider taking out a bridging loan, which could enable you to retain ownership of your home.
Bridging finance can be used to avoid repossession in two ways:
- Covering temporary financial shortfalls
Oftentimes, temporary financial difficulties make it harder for households to make ends meet for a limited period of time. Be it a month, three months, six months or more, even the slightest economic hiccup can pave the way for a tricky period.
Bridging finance is designed specifically to cover short-term financial gaps like these. An affordable loan can be taken out at short notice, secured against your home and repaid in full within a matter of months.
With interest as low as 0.5% per month, a bridging loan can be just the thing for keeping up with mortgage payments during times of economic turbulence.
- Selling your home on your own terms
As a last resort option, bridging finance can also be used to enable you to retain ownership of your home and sell it on your own terms. Secured against the equity you have in your home, a bridging loan could be taken out to fully repay the outstanding balance on your mortgage.
You can then place your home on the property market in the normal way, and sell it for its full market value. After which, the funds raised by selling your home can be used to repay the bridging loan, and you retain the rest.
An option that still involves the sale of your home, but could see you ending up way better off financially than allowing your bank to sell your home on your behalf.
Communication is Key…
Again, it is worth emphasising how most lenders will make all possible efforts to ensure repossession does not become necessary. It is in nobody’s best interests to involve the courts and is therefore, the last resort option for the vast majority of providers.
The key to avoiding repossession lies in clear, honest and open communication. The moment you encounter (or even anticipate) financial difficulties, it is essential to consult with your lender immediately.
In doing so, you may be able to come to an agreement comprising one or more of the following:
- An extension of your mortgage term, increasing the number of monthly repayments you will need to make but significantly reducing the size of each instalment.
- A payment holiday, giving you several months to get your finances back in order and start making your regular payments again.
- A temporary period of lower monthly repayments, after which your payments are increased to compensate.
Depending on the terms and conditions of your mortgage, there may also be the option of switching to a different provider, in order to benefit from a lower rate of interest and more competitive borrowing costs.
If in doubt, consult with an independent broker at an early stage – don’t wait until you are already in arrears to take action.
Meta: Used effectively and at the right time, affordable bridging finance can help avoid the repossession of your home in two different ways.
