Dealing with the devil of house repossession

Published on Friday 28 November 2008 19:37

EACH week The Scotsman gives you a top ten guide to pertinent financial issues. The government announced help for families struggling with mortgage repayments in this week's Pre-Budget Report, but for many, the spectre of repossession is all too realistic. This week, Robert Annand of Ashcourt Financial Planning offers ten tips on avoiding repossession and knowing your rights if the worst happens.

1 THINK AHEADMost mortgages have a measure of flexibility in them, so if you can pay any extra in advance, when things get tough you may be able to pay a reduced figure or even take a payment holiday.

2 SPEAK TO YOUR LENDERIf you're struggling to pay your mortgage, it is vital to contact your lender for advice.The lender can explore a number of possibilities, and taking the action to contact them and pay what you are able to gives you a better chance of coming to an arrangement that will allow you to remain in your home.

3 CHECK YOUR ENTITLEMENTSMake sure to use any social security help to which you are entitled, such as Jobseekers' Allowance (unemployment benefit), income support or pension credit benefits. Even if redundancy payments mean you're not able to claim Jobseekers' Allowance or other benefits, register immediately as this is a requirement for getting any government help paying interest on your mortgage. From April (though this is a temporary measure) you will only have to wait 13 weeks for this help (rather than the current 39 weeks) and the limit for loans eligible for help with interest payments has been doubled to 200,000. In addition, in order to let you get things under control, mortgage payment protection insurance could help meet repayments for a year or two

4 EXPLORE ALL OPTIONSReducing your monthly payments for a set period may be an option your lender presents you with, although additional interest may be added to the overall loan. Other options may include reducing monthly payments by extending the term of your loan; switching from a repayment basis to an interest-only mortgage; adding arrears to the outstanding mortgage. There may even be a case of accepting no payments for a limited period, if the lender believes there is a good prospect of your circumstances changing soon.

5 KEEP ON BUDGETYour mortgage lender will expect you to have drawn up a budget listing all your income and outgoings. You can find a useful budget calculator at: www.moneymade clear.fsa.gov.uk/

6 DON'T BURY YOUR HEAD IN THE SANDIf you miss payments your lender will contact you to confirm how you intend to pay off the arrears and/or to contact them. If you fail to respond, or the lender is not satisfied by your response, another letter will usually be sent giving you seven days before solicitors become involved. It is better to negotiate with your lender before such a situation arises.

The FSA has an advice booklet called What to do when you can't pay your mortgage. You can download a copy at: www.moneymade clear.fsa.gov.uk/pdfs/mortgage_cantpay.pdf

7 TAKE INDEPENDENT ADVICEGet professional independent advice before handing over your house. The debt you have accrued will increase while it will also be harder for you to get a mortgage in future as your details will be logged on the credit reference agencies' records. An option may be to put your house on the market and you'll usually get a better price for it while it's occupied than the lender will when selling it unoccupied. It should be noted that you will be liable for any shortfall between what the house sells for and the total sums that you owe your lender. Lenders do pursue borrowers for shortfalls for years after any sale, and interest and expenses can continue to increase over this period. Negotiating a final settlement with your lender at that time should address this potential pitfall.

8 BEWARE OF 'SALE AND RENT BACK' FIRMSSchemes that offer to buy your house and rent it back to you are not yet regulated by the Financial Services Authority (FSA), though the government is looking into it. If you opt for this sort of scheme you will no longer own your own home and could still be evicted if you fall behind with your new rental payments. In addition, most of these firms will pay you less than the market value of your property.

9 GOING TO COURTBy failing to come to an agreement with the lender, it is likely they will go to court to seek the repossession of your property. Remember that even if this does occur, the court can suspend the lender's enforcement order, noting things like your ability to pay, the state-of-play with your family and the like. The actions taken by the lender in working with you to try and avoid the repossession will also want to be known by the court.

10 KNOW YOUR RIGHTS IF SHERIFF OFFICERS COME KNOCKINGSheriff officers will give you a period of time to vacate your home if repossession is ordered.

They can use any means to enter the premises including reasonable force. But this is only to take possession of the house and the lender has no right to the contents of your house which you should under reasonable circumstances be allowed to take with you.