Sometimes moving out of your home isn’t for the reasons you’d initially imagine moving into the property. Unfortunately, the decision to move may not be in our hands, and we have to make the best of the situation. Having a mortgage or debt on the property can feel like a crocodile in a spiral of a death roll that lasts years. Why stretch your finances? Instead, consolidate your equity and live within your means comfortably.
The Financial Conduct Authority states that more than £15 billion in lapsed mortgage payments are owed in the UK alone. This is a significant amount and shows how near many people are to getting repossessed. In fact, 80,000 people are in arrears of more than 2.5% of their outstanding payments!
You may have never thought of having your home repossessed, yet it is a constant reality many face each day. Under such stressful conditions, many find themselves moving back in with their parents or in their vehicles. This has become so common that in the US, this is called the ‘mobile homeless’.
Currently, 1.4 million households in the UK are struggling to meet their mortgage payments. Some are one default away from repossession and seeing their home being sold by a bank to recoup their losses. However, this doesn’t need to be your future; there are other options!
The House Repossession Process
To understand how you can save yourself from an unfavourable future, first you need to understand how repossession occurs. To start with, you would have signed up for either a fixed or flexible rate mortgage for a fixed time period like 30 years with monthly payments. These payments are designed to pay off the interest on the mortgage and the cost of the house.
If you chose a fixed-rate mortgage, you would know the exact payment each month needed. Alternatively, if you selected a variable interest rate mortgage, you’re gambling on the rate being the same or reduced over time. In either scenario, you can soon run into difficulty if you’re making less than the amount you need to live and pay the mortgage. This often happens when your assumptions have been over-ambitious, and you don’t have an emergency fund for things like a loss of income.
If you don’t contact your lender, they’ll file for a repossession order. If you don’t challenge it with you showing you’re trying to make payments and meet your obligation, a court will rule in favour of repossession. You’ll be given a date to vacate, and bailiffs are ordered to remove you if you fail to do this. Your home will be auctioned, and any funds in excess of what you defaulted on, the cost of the court, and bailiffs will be returned to you. If you want to save capital, a bank lead home auction is not the way to go, and neither is squatting, as you’ll be paying for it in the long run.
Trying to avoid having your home repossessed? Contact us to find out what options we have to help you. You are under no obligation, and there are NO FEES at any part of the process.
How to Avoid House Repossession
You often know when the mortgage train is coming off the tracks but like to ignore it. As soon as you’re aware something is wrong, contact your lender as soon as possible. They make more money from interest payments than from auctioning your home; communication is key to stopping them from resorting to extreme measures!
In the last quarter of 2017, there were 1,900 UK homes repossessed.
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How to Stop Repossession
The correct course of action is to tell your lender right away you’re not going to meet a payment. It sounds counterintuitive, but the reality is banks make more money off you than repossessions. This shows a court that has to confirm the need for repossession by the lender that you’re willing to work with the lender. This gives you some options!
You’ll need to prepare for the conversation with the lender to give you the best chance of averting disaster. For example, you could try the following:
- Suggest you change to an interest-only mortgage.
- Add the arrears to the mortgage.
- Taking time off from paying the mortgage as a ‘mortgage holiday’.
- Selling an endowment policy to help.
That said, if you want to get out of arrears with your mortgage lender, you may consider diversifying your revenue streams:
- Rent your home out and live with family or in a vehicle.
- Take in a tenant either privately or through a government initiative.
- Then, bite the bullet and sell the home yourself under your terms, not through an auction.
There’s also another option you can try!
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Overpaying Your Mortgage to Avoid Repossession
You can attempt when you have available funds to pay your mortgage off and proactively stay ahead of payments. This depends on what mortgage you signed up for; many lenders don’t permit this as it can impact monthly payments in some circumstances. It also leaves you out of pocket and still risks defaulting on monthly payments.
The reality is that a mortgage is a great way of beating inflation. That said, you will get some benefits from following this strategy. First, the lender will see that you have the means to pay off your mortgage and that you’re actively trying to meet your obligation. This extra work in good times can help give you a buffer if you lose your job or struggle to make your repayments.
You won’t pay interest on these monthly overpayments, and you could find that your money works for you better throughout the mortgage. That said, check to ensure you’re not charged an early pay-off fee by the lender that counteracts the work you do paying it off early.
According to London & Country, if you paid off £50 a month more on a £150,000 25-year 4% mortgage, you’d be able to pay off your mortgage two years earlier!
Mortgage Insurance Policies
No one knows what will happen throughout your mortgage; 25 to 30 years on average is a long time. Many buyers will want insurance to protect a mortgage from loss of earnings, such as a partner’s death or serious injury. The general rule of insurance is you only need it if you can’t afford to lose what it’ll protect; a home is certainly a high-value asset for most. In many cases, your lender will insist that you get insurance as it also protects them from losses.
Only half of mortgage owners have life insurance, a fifth (17%) have critical illness cover, and one in ten have income protection.
Combat All Your Debts
When times are good, like the past 10-year bull market, it’s easy to lose sight of risk or the understanding that it doesn’t scale uniformly. Currently, according to many global banks, we’re seeing interest rates rise with a ~50% chance of a recession in 2023. But, unlike other recessions of recent times, it’s expected that all the ways of digging nations out of one have been tapped out.
The Bank of England has already began raising interest rates in line with the US. This is due to our currency being backed by the US dollar and not gold, along with inflation caused by money printing impacting the cost of goods. This is to reduce rising inflation that currently stands at ~9.1% and will continue to grow without a larger ‘tax on borrowing’ increased to meet the increasing debt.
Having a variable rate mortgage at present does not seem like a good move by any buyer, and it could be a wise idea to talk to your lender about a fixed mortgage to reduce repayment risks. Remember, while base inflation is ~9.1%, the consumer price index for many products is far higher due to supply chain issues increasing commodity prices.
What this all equates to is that you need to now factor in that buying coffee could be twice as high as buying a cotton shirt which could be three times what it was when you got your mortgage. Fixed mortgage or not, your cost of living could be what impacts your mortgage more than interest rates alone!
According to UK Finance, the UK’s personal debt currently is £200 billion, with £70 billion of this being credit card debt!
Face Your Finances
You have to take action once you realise you have a problem paying for a mortgage. The Ostrich burying its head in the sand move never works with finances. You may become aware that your monthly savings are slowly reducing, or you’re asking a new credit card company for a card with interest-free payments to cover a rainy day event.
No matter what causes you to become aware that you have a financial problem, you must face the reality of the situation. Hoping things get better never works from the perspective of the ledger. If your outgoings are more than your income, then you have a problem to solve.
Check your last three months of accounts and figure out what’s causing the issue. Plot everything out in a chart if you need to. Then, find out if you have expenses that can be mitigated and, if they can, will they allow you to continue to live in uncertain times.
Around 40% of the population doesn’t have a budget plan, do you? Make one and see if it works. You’ll need an objective plan once you’ve identified the problem as a serious one; good budgeting can’t shake off. It will need to be robust and give you flexibility in trying times.
Waiting for outgoings to erode your buying power and lead to eventual repossession is not the solution. When banks auction your property in repossession, you are unlikely to get back what you put into it. Buyers will only pay chicken feed, knowing full well another property will always be available to bid on.
The top reasons people don’t want to budget according to the Money Advice Service:
31% consider it boring
19% don’t find the time
11% don’t feel confident with financial decisions
10% enjoy not knowing
8% believe it’s difficult
Don’t Be Ashamed to Claim
Many people are proud and have an ego they feel needs to be met with actions and possessions. However, when you fall into financial hardship, you need to switch gears and train your brain to take every survival option you can do.
If you lose your job, sign up immediately for welfare to reduce your burden. The UK has welfare to help those in need; if your home is on the line, then you qualify. The UK doesn’t need another homeless person to shelter if a few pounds can help them retain their home! Try to use logic to solve each problem and consciously avoid emotion to solve the problem faster and more efficiently.
Take Financial Advice
As part of your problem-solving process, ensure you take action quickly and go to financial advisors and those in the know. Speak to Shelter and Citizens Advice Bureau. These are charity organisations that the government assists. These organisations are designed to help the public understand what they need to do and what support is available to them in trying times. Both are free to use and should be used to help inform you of the best way forward.
You can also speak to similar organisations like PayPlan, StepChange and the Debt Advice Foundation. These are phone-based charities and work similarly to the two mentioned above, and they can point you to online resources to help you as well.
Stop Repossessions Now!
Shyft can provide you with a pragmatic solution to get you out of difficulty. We can buy your home at fair value. This enables you to settle any debts and gives you the remaining equity you put into the property to start anew. This could allow you to rent a new property or purchase a smaller one with no bad credit rating.
What’s more, we can buy your home, and you have money in your account within 7 to 28 days of contacting us for an evaluation. We can even tell you the day you’ll get your money.
Apart from getting money fast and at a fair value; not repossession auction value, there are some other benefits:
- We have an integrated buying team and one of the largest property purchasing companies in the UK. This means you only deal with one company, and there’s no scouting for estate agents, surveyors, or solicitors; we handle it all.
- We take all the risk and time needed to sell a property by ourselves.
- We make our money on the property’s future buyer, which allows us to offer you fair value based on your property’s location and general state.
- We have extensive cash reserves and a long list of investors; we never need a mortgage provider which allows us to work fast!
- We cover all costs of the engagement; you never pay us anything, including if you decide not to accept our offer!
- Our business is not designed to capitalise on your suffering; we want you to get fair value for the property to enable us to sleep at night.
- We allow you to pick your moving-out day from the property to help ensure your transition is as smooth as possible to your new life.
If you have any questions about what Shyft can offer, please give us a call; there’s no obligation, and we’re happy to discuss everything with you.