Worried About Repossession? Steps you can take to avoid it
Background
2008 is turning out to be a difficult year for many of us financially. For the last fifteen years we have enjoyed a benign economy with low inflation and unemployment, relatively low interest rates and rising house and other asset values.
This encouraged us to extend our borrowing significantly, so much so that the amount we owe personally in the UK is growing by £1million every five minutes. In particular, many of us have had to borrow very large sums to be on the property ladder.
The Council of Mortgage Lenders have reported 18,900 property repossessions for the first six months of 2008, a rise of 41 percent compared to the second half of 2007. This year, we can also expect inflation to increase way above Government targets because of rising food and fuel costs.
It seems likely that house prices at best will stabilise for some years but could actually fall further. On top of that there is the real prospect as the economy slows, of rising unemployment and the likelihood that any further interest rate cuts (which will be limited in any event because of the fear of rising inflation) will not be passed on to borrowers as lenders seek to restore their margins following the boom in sub-prime lending.
This gloomy news will come as a blow to all of us with large mortgages especially as the average mortgage has just topped £100,000 for the first time.
Things are especially difficult for the 1.4 million households that the Financial Services Authority estimate are facing the end of low, fixed interest rates on mortgage loans. There has also been a significant change in the type of mortgages being taken out with 34 percent of all mortgages last year being interest-only compared to just 12 percent four years ago.
Apparently one-quarter of these have no plan to repay the capital.
Steps to take
The first thing to do is to look at your income and see if there are ways to boost it.
For example, ask yourself:
- Can I work any overtime or extra shifts? Alternatively, negotiate a possible pay rise?
- If this is not possible can I take another part-time job?
- Could my partner earn more? (Please handle delicately!)
- Do I have a spare room I could rent out? (Income received would be tax free)
- Am I getting all the benefits to which I am entitled? Fact sheets are available from www.direct.gov.uk
- Similarly, am I claiming all the tax credits to which I am entitled? The site www.taxcredits.inlandrevenue.gov.uk will show you clearly the credits you are entitled to.
- Am I eligible for childcare vouchers? Visit www.childcarevouchers.co.uk for more information.
The next thing to do is to produce your budget. Helpful budget sheets and a calculator can be found at www.moneybasics.co.uk
To do this you will need to:
- Find all your most recent bills
- Record everything you spend your money on (keeping a small notebook with you and writing all spending in it helps)
- When food shopping take advantage of the "Spendometer" which you can download on to your mobile from our homepage
- Include all members of your family that spend money
Fill in your income after taking the above steps and then look at your spending.
Once your budget has been completed take a keen look at it and ask yourself:
- What am I spending on non-essential items?
- Could I be paying less for expensive items like utilities? To help you go to a price comparison site like www.uswitch.com
- Can I make my money go further? Both this site and www.moneysavingexpert.co.uk have hundreds of money saving ideas.
Hopefully the steps outlined above will have improved your finances sufficiently that you will be able to meet your monthly mortgage payments and remove the threat of repossession.
However if that is not the case you need to ask yourself "What else can I do?"
There may still be other options open to you:
- Are you able to downsize to a smaller home with the result that cash is released and that you can afford lower mortgage payments on the smaller property?
- Could you switch to a different type of mortgage with your existing lender that would take the pressure off? Using an 'offset' mortgage product can be helpful if appropriate.
- Can I take out a cheaper mortgage with another lender? (This is probably an unlikely option especially if you are behind on your payments as companies have tightened their lending criteria considerably since the credit crunch.)
- Can the lender suggest anything? If your problem is short-term such as being off work for a few weeks because of an operation, you may well find the mortgage company will be sympathetic and prepared to offer you a temporary payment "holiday" where they will agree to accept lower or even no payments.
- Have you made sure that you are paying your priority debts such as mortgage and council tax ahead of other less urgent demands such as credit and store cards? Non-payment of the former can result in more severe penalties to you than the latter.
- Even if repossession looks likely, seek time. Try and get the lender to agree that you try and sell the property yourself. It is in both your interests as the extra time may allow you to get a better price for the property and a lived in, furnished home is likely to be more attractive to potential buyers, rather than an auction house selling an empty, obviously repossessed property.
- If you and your partner jointly contribute to the mortgage payment, could your partner take over paying your share temporarily? Obviously if you are falling behind and your partner cannot make up the difference, then they too face losing their home even though they may have kept up to date with their share of payments.
The most important thing to do is to communicate with all involved.
This involves talking to:
- Yourself! Many people who get in to a position of over-indebtedness go into denial, or are prone to seriously underestimating the amount they owe.
- Your partner and older children. Many people who end up in debt due to a change in personal circumstances, even when this is through no fault of their own, feel guilty and unable to tell their partners. In blissful ignorance therefore, they continue to spend as before and make no effort to either increase income or reduce spending. Partners also feel that trust has been broken when the other has been less than honest about their financial position. In an extreme example, a lady phoned our Helpline whilst there were people at her door to repossess the property, and her husband had not said a thing.
- Contact the Benefits Agency and other organisations outlined above to ensure you are getting all the help you are entitled to. Thresholds change frequently so just because you were turned down for something years ago does not mean that you are not eligible now.
- HMRC- if your predicament has arisen due to redundancy or short-time working, you may have paid too much tax under the PAYE system and are due a refund. Contact your tax office to check.
- Your mortgage company - your lender cannot be sympathetic to your problem if you haven't told them what it is! Always communicate in writing and keep copies of all letters sent and received. Only make offers you can realistically afford and back this up by sending copies of your budget and advise them of any change in your circumstances. Ask for their advice.
- Other creditors - once you have communicated with your mortgage company, (a priority creditor), ensure you write to everyone else you owe money to.
- Debt Advice agencies - if you have several debts it is vital that you seek free and confidential help from a debt advice charity. Contact the Consumer Credit Counselling Service (CCCS) on 0800-138-1111 or visit their website at www.cccs.co.uk . National Debtline's website address is www.nationaldebtline.co.uk and faith charities such as Christians Against Poverty www.capuk.org also do a brilliant job.
By following the guidelines above you should prevent having your home repossessed and at the same time avoid the despair and hopelessness that over-indebtedness can bring.
