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If you’ve missed your mortgage repayments and have payments overdue, then you are ‘in arrears’. If you are unable to agree a way of paying your arrears, your lender might ask a court for what is called a ‘possession order’. This enables them to sell your home and use the money from the sale to recover the money you owe.
And if you’re reading this, it’s likely that you’re in arrears or are struggling to pay your mortgage and need answers to avoid repossession from happening.
We’ll look at the process of repossession and other associated topics to help you at this difficult time.
Let’s get stuck in.
If you miss your monthly mortgage payment, your lender will contact you; usually within 15 days of the amount being overdue.
However, you don’t want to wait for them to call. Be proactive and contact your lender as soon as possible so as to reduce the risk of repossession.
It’s very important for you to make the first move and initiate talks with your lender.
Don’t miss repayments without talking to your lender first. Missing a repayment without immediately informing your lender will trigger the arrears issue, and start the clock ticking towards repossession.
That’s why taking action sooner rather than later is crucial when it comes to missed mortgage payments and repossession.
So if you are worried about how many mortgage payments it’ll take before repossession occurs, don’t ignore the problem. It will not go away.
Lenders must use repossession only as a final resort, and there’s an agreement in place that the major lenders won’t commence repossession proceedings until at least three months of arrears have occurred, and you have been referred to an independent debt advisor for help.
Although being in arrears does mean that your home could be repossessed by the bank or your lender, repossession doesn’t happen overnight. The repossession process can take several months before a court order is made. During this time, you can attempt to stop the repossession by being proactive.
However, you should remember that the repossession process effectively begins after the first missed mortgage payment because if you are not able to afford the first missed payment, it’s unlikely you are able to afford subsequent mortgage payments.
More missed mortgage payments means going further into arrears, but it was the first missed payment that triggered the repossession process.
Unless you make good on this first missed mortgage payment (by repaying it), or you agree with your lender to either add the amount to your mortgage, or pay it off over time, your lender will continue with the repossession process; especially if you fail to communicate with them.
Before the process gets as far as repossession, you have to be as proactive as possible and ask your lender about alternative options that can be implemented to help reduce the amount you need to pay each month. These could include:
By extending the term, you’ll spread the debt over a longer period, reducing the amount that needs to be repaid each month. This will result in you paying more interest in the long-term but it will be a short-term solution. Mortgage terms can usually be extended until your retirement age.
To reduce the payment, you could find out about having an interest-only mortgage so that you’re no longer paying off the actual loan. This could drastically reduce the amount you pay each month, depending on how far you are into the mortgage. If you’re in the early years it will make a small difference, but the closer you are towards the end of the mortgage term, the bigger the impact. This option will cost you more interest in the long-term, so you may want to consider changing back to a capital repayment mortgage when you can afford to do so.
To reduce the risk of repossession, you could try to pay your lender a reduced amount because this will show them that you’re willing and able to pay something. If you are being proactive and able to afford some (but not all) of your monthly mortgage payment, tell your lender how much you can afford to pay back. Work out your budget before you call. It’s also a good idea to tell your lender if you’ve been speaking to a debt adviser. This shows them that you’re serious about dealing with your debt and that you’re tackling the issue head-on.
If your home is worth more than the mortgage, your lender might let you add your arrears to the total amount you owe and pay it back over the lifetime of the mortgage. This is known as ‘capitalising your arrears’.
Your lender has to consider a realistic repayment plan that you suggest and if they do not accept your proposal, they need to write to you within 10 working days to explain why it is not acceptable.
It may be that your mortgage lender will delay court action if you’ve applied for or qualify for:
An SMI loan can help with repayment of a mortgage up to £200,000 if you’re of working age, or £100,000 if you are in receipt of pension credit.
In order to apply for an SMI loan, you must currently be claiming:
It’s important to note that you cannot receive SMI payments for the first nine months of a benefits claim if either you or your partner are of working age. However, you can get SMI payments immediately if you already claim pension credit.
SMI payments are made directly to the lender – not to your bank account – and you cannot get assistance for the mortgage amount that you have borrowed; only the interest.
Unlike a mortgage, you don’t have to make regular repayments on an SMI loan. The loan payments are secured on your home at an interest rate that is (at time of writing), 0.6%; although this rate can be amended twice per year; on 1 January and 1 July.
Repayments can be made at a minimum amount of £100, although the whole loan will have to be paid if you sell the property or transfer ownership to someone else. However, until such a time, this may be a solution to avoiding repossession even though you cannot afford to make a mortgage payment because a lender cannot commence court proceedings for repossession if you’ve applied for SMI.
When you have arrears to pay, you could investigate the possibility of using your pension or releasing money from an endowment policy – a type of life assurance – to help you cover the sum.
Alternatively, if you’ve got payment protection insurance, check if you can use it to pay the arrears on your mortgage. You could be covered if the reason you’re unable to pay your mortgage is that you’ve been ill or you’ve recently lost your job. Having such a policy could help you to avoid repossession.
Another solution is to consider taking in a lodger. Doing this will show your lender that you expect your finances to improve in the future because there will be a guaranteed income to assist you with repayment.
You may also want to seek the assistance of a not-for-profit debt counselling agency and find out if they could help you. If the issue ever went to court, your proactive approach in obtaining professional advice would demonstrate that you’ve been trying to rectify the issue instead of burying your head in the sand. Such proactive behaviour could prevent a court from issuing a repossession.
By talking to your lender, an alternative solution could be set-up that will help you make your payments whilst you address your financial problems.
It is always best to get ahead of the problem, so speak to your lender as soon as you think you might have difficulties repaying.
Some lenders may be willing to offer informal forgiveness, delay late fees, or not report the missed payment to credit agencies if you let them know beforehand that you’re going to fail to make a payment. You may even be able to have a ‘payment holiday’ where you miss a payment, or make lower payments for a period of time while you organise your finances.
If your inability to pay your mortgage is temporary – and you will be able to return to paying in full in the near future – your lender is likely to want to work with you and help you to avoid repossession.
However, if your financial issues are more permanent, they may refer you to their loss mitigation department. This could mean modifying your mortgage loan, or selling your house. Although this may seem like a daunting and scary prospect, it is preferable to defaulting payment on your mortgage and risking repossession.
This is why it is essential to speak to your lender to work out the best options for you and your situation.
If you are financially aware and act quickly, you shouldn’t have to worry about missing mortgage payments leading to repossession of your home. However, it’s not something that should be brushed under the carpet.
After all, if you can’t afford to pay your mortgage and you don’t communicate with your lender, they will take steps to repossess your home.
Missing your mortgage payments may seem disastrous, but as previously covered, if you take the right action (early communication with your lender), it need not be as big a problem as you think; albeit don’t be nonchalant about the situation.
It is in the mortgage lenders’ interest to keep receiving your continued payments so they will want to work with you and will be keen to help find a solution to the financial difficulties you’re experiencing. Under the Mortgage Conduct of Business (MCOB) rules, lenders are required to consider your proposals for repaying the money owed and they will only start the repossession process as a last resort.
Should things reach this stage, your home will be put up for auction so as to achieve a quick sale. However, that may not be the end of the situation. If the sale price does not cover what you owe, the lender can still chase you for the outstanding amount.
As such, repossession should only be an option if you and the lender can’t agree on an alternative payment plan, but it again emphasises the importance of early communication.
There is no standardised period between when a homeowner falls into arrears and when the repossession process commences. If you want to know how many months’ mortgage arrears can be missed before repossession, a lot will depend on the bank and your personal circumstances.
As previously mentioned, your lender must consider any realistic proposals you make for repaying mortgage arrears (such as paying a reduced amount), which is why it’s so important for you to contact them first.
Any communication that you receive from your lender should be easy to understand, but it’s important that you respond within a reasonable timeframe. If you try to ignore the problem, it’ll speed-up the process of your home being repossessed.
It’s important to note that lenders should not start repossession proceedings while a settlement is being actively negotiated. If your lender is writing to you and you’re ignoring their correspondence, it can argue that negotiations are not taking place and so can therefore commence repossession of your house.
Also, before court action can commence, the lender must provide you with:
If the repossession order does end up going to court, there are a number of outcomes. These are:
If this is the decision, your mortgage lender can evict you and your family from your home. In this situation, it is likely that your lender will likely sell your home in order to repay your mortgage debts. A repossession order that is successful could mean that you need to move out of your home within 28 to 56 days from the court order date.
A ‘suspended repossession order’ could be granted if the judge decides that you should have another chance to keep your home. If this is the outcome, you will be allowed to stay in your home for longer. However, the suspended possession order will come with certain conditions and to avoid repossession of your home, it is imperative that you keep to their conditions. An example could be that you are required to pay your monthly mortgage instalments as well as your arrears at a set amount. Although as previously covered, this could be an outcome that you achieve directly with your lender if you communicate with them at an early stage and thus avoid having to go to court.
If your case is adjourned, it means that the case will be postponed to a later date. This can happen if your lender is required by the judge to take certain steps before the case comes back to court. It does not mean that the case has been closed.
This could happen if it can be shown that your lender has not followed the correct procedures.
According to UK Finance, their latest data from Q2 2021 reveals that there were 26,560 homeowner mortgages in ‘early arrears’ (that is those between 2.5 and 5 per cent of the balance in arrears). Over the same period in 2020, the number of mortgages in early arrears increased modestly, largely due to payment difficulties caused by the first COVID-19 pandemic lockdown prior to payment deferrals being introduced.
Since then, payment deferrals provided those borrowers who found themselves in early arrears with the ability to pay off their arrears and avoid repossession. These actions resulted in an overall decline in early homeowner arrears over the course of 2020, with the number of cases in Q2 2021 remaining lower than the number of arrears cases before the COVID-19 pandemic began.
For the same period, there were 27,910 homeowner mortgages with ‘more significant’ arrears (representing 10 per cent or more of the outstanding balance).
Despite these figures, only 210 homeowner mortgaged properties and 230 buy-to-let mortgaged properties were taken into possession in the UK during the second quarter of 2021. Mortgage lenders will repossess the property in order to sell it and recover the money owed to them.
It’s important to remember that if you’ve had a late mortgage payment – and it’s been recorded on your credit report – the late mortgage payment will stay on your credit report for six years.
As time passes and the missed payment ages, it will have less impact on your credit score. Banks and other lending institutions usually pay more attention to your most recent credit history. That means keeping up with future payments to make sure your score improves over time.
The number of missed payments on your credit report makes a difference too. Usually, the more missed payments there are recorded, the more the negative impact to your credit score.
The other factor that will have an impact to your credit score is the length of time between when you missed the mortgage payment and when you made good on the payment. If you manage to correct the late payment within 30 days, it would have less impact than a missed mortgage payment that took 90 days to correct.
With these markers on your credit file, it could prove to be difficult to obtain a mortgage in the future because of what has occurred in the past. That’s why it’s so important to approach your lender as soon as possible to advise them of your financial situation and avoid the risk of repossession.
If a lender applies for a possession order, you are still entitled to sell your home. At this point, securing a quick house sale can provide you with the capital necessary to clear the arrears and either fund the purchase of a more affordable property, or give you a deposit for rental accommodation. Plus you won’t have a repossession registered against you, which would severely affect your chances of getting a mortgage in the future.
Also, selling the house yourself could mean you’ll obtain a higher price and there’s the bonus that you’ll be in control of the sale and your situation.
We hope you’ve found this article to be informative and helpful. And remember, if you’ve missed a mortgage payment, you’re facing repossession, or you can see a financial problem is on the horizon and you want a fast cash sale, call us or send an email.