People in today’s society will have differing attitudes to debt and debt repayment. There will always be those individual’s who take a very ‘relaxed’ attitude to debt and debt repayment, however the vast majority will take the matter very seriously and in the case of property ownership, they will take any realistic action to make their mortgage repayments on time. Unfortunately there will always be situations out of the control of even the most conscientious borrower.
Individuals fall into arrears on their mortgage for many different reasons; accident or sickness, redundancy or unemployment, death of a spouse, insolvency or hikes in mortgage interest rates to name just a few. The most common reason for property repossession in current times can be attributed to general high levels of consumer debt. This comes in two forms, secured and unsecured debt. Whether this is due to the borrower making payments on their unsecured debts in priority over their mortgage or a level of mortgage borrowing taken out which their income cannot afford.
But how can a few missed payments on the mortgage lead to property repossession?
Very rarely will a property be repossessed over an isolated incident of a couple of missed payments. The advice given to borrowers who fall behind on their mortgage repayments is to contact their lender at the earliest possible opportunity. Speedy action on the part of the borrower can often reduce the potential arrears and put them on the road to recovery. Delaying action is likely to result in increased mortgage arrears and ultimately could lead to property repossession.
Borrowers have a number of options available to them in the early stages of mortgage arrears. These will include:
* Capitalising the arrears;
* Coming to an agreement with the lender to make good the missed payments over an agreed period of time. This is usually only a viable solution if the borrower can afford to increase the monthly mortgage payments;
* Paying the mortgage on an interest only basis for an agreed period. Of course this will only be an option open to those paying the mortgage on a repayment basis. This method is viewed as an immediate short term solution to relieve the immediate pressure as the arrears will still be outstanding;
* Increasing the term of the mortgage. This will take the effect of reducing the monthly payments, thus making them more affordable;
* Downsizing to a cheaper property. This could allow the borrower to use the cash raised to settle the arrears. This of course is not always a viable option as it is dependant on the seller finding a buyer for the property and so on;
* Surrendering an investment policy – such as an endowment or an ISA attached to the mortgage. Surrendering such policies will usually result in a significant loss to the investor as very rarely will he or she receive the full value of the policy. Consideration must then be given as to how the mortgage will be repaid at the end of the term with no repayment vehicle;
But what happens if an agreement with a lender cannot be made, or a solution found to clearing the arrears?
Handing back the keys to the lender is rarely a good idea. The borrower will still be responsible for paying the mortgage until the lender has sold the property. This will lead to more arrears and arrears charges being made. It must also be understood that prices obtained for repossessed properties will usually less than the market value – The lenders primary aim in this case is to sell the property as quickly as possible in order to recoup their funds.
If an arrangement is not made and the arrears situation escalates then it is highly likely that the lender will seek a legal remedy through the County Courts. The borrower will first be notified of this through a letter from the lender’s solicitor.
In order for the lender to take possession of a property, it is first necessary to petition the County Court for a possession order. The borrower will usually receive a court date for the hearing. Before the County Court will even consider granting a possession order it first has to be satisfied that every avenue has been explored by the lender and borrower. The County Court will take the view that possession should be the very last resort.
The County Court may take one of three course of action:
* It can grant an outright possession order. This will enable the lender to take possession of the property which will usually happen within 28 days;
* It can grant a suspended possession order. This will place an obligation on the borrower to make payments in accordance with the court’s decision, with the suspended possession order enforceable if the borrower fails to keep up the repayments.
* It can adjourn the case until a later time.
Once a possession order has been granted the court will also decide a date on which this order is enforceable. The lender can then take steps to take possession of the property.
Once the lender has obtained vacant possession of the property, they will then follow there possession procedures which will include; changing the locks, disconnecting utility services, taking gas and electric meters and informing the local police of the possession.
Even after the property repossession, the borrower can still redeem the mortgage up until the point of sale. This can sometimes happen if the borrower has been organising a remortgage during this process.
In the event of the lender losing money on the proceeds of the sale, it may take further action if it believes the borrower has the financial means to make good the loss.