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EVERYTHING YOU NEED TO KNOW ABOUT REPOSSESSION

  1. Why can the lender take away my home? The law behind repossession.

Generally speaking, the lender has an automatic right to possession of your property since most mortgages are in the form of a long lease. Taking possession is the prelude to sale and once in possession of the property the next step is for the lender to sell. The lender can use reasonable force to take possession, although in doing so risk criminal proceedings. Accordingly, possession will usually be obtained by way of court order. Once in possession, the lender must take reasonable care of the property and pay market rent to the borrower if it is a residential property and the lender intends to occupy the premises rather than sell.

  1. Doesn't the law allow me to keep my house? The rights of the mortgagor when in default.

Once a lender seeks possession of a dwelling house, the borrower may be able to postpone the repossession under the Administration of Justice Act 1970, section 36, if they can show that they are reasonably likely to be able to pay any arrears. However, the borrower must satisfy the court that they can meet the debt within a period of time the court finds acceptable and also keep up with future repayments once the arrears have been cleared. Prior to 1996, a court would normally deem a reasonable period of time to be about 2 years. However, a reasonable period may now be the whole term of the mortgage, which is usually 25 years.

It is important to note that repossession will not be postponed so that the borrower can make arrangements to sell the security themselves; such an order is only made where the borrower demonstrates to the satisfaction of the court that they are able to meet arrears and future repayments.

  1. Ok, I'm struggling to make repayments, what should I do? Your first step to resolving the situation.

The first thing that any borrower should do when they anticipate that they may not be able to meet future repayments is to contact the lender. Most organisations have specialised members of staff who can give expert advice and nearly all will treat you sympathetically; established lenders even have debt counselling services on hand that should be taken full advantage of.

Once you have explained to the lender that you are unable, or going to become unable to meet repayments, many will be happy to renegotiate and thus prevent you from falling in to arrears in the first place. Here is a short list of what they may be willing to do.

    • Reduce monthly payments by extending the term of the loan
    • Transfer you to an interest only mortgage instead of a repayment mortgage
    • Accept smaller payments during the period of financial hardship
    • Add any arrears to the mortgage amount rather than requiring you to make immediate repayments.

The lender may also be able to advise you on any insurance policy that you may have taken out at the time of the loan. Such policies will usually cover mortgage repayments for around 12 months if you become unemployed or cannot work through sickness.

  1. But this isn't fair, the lender knew I couldn't make the repayments and set me a very high interest rate! Renegotiating a deal if the above is of no use.

The Consumer Credit Act 1974 offers some degree of protection here, allowing for a court to renegotiate any terms of the original loan agreement or mortgage provided that they are considered extortionate and that the loan itself meets certain requirements. However, this is very rarely an effective way of preventing repossession, as courts are reluctant to alter a contract that you willingly agreed to knowing full well that the interest rate was high or that you couldn't make the repayments.

It is important that you understand that most of the above options are short-term fixes; repayments will still have to be made to the lender even after you have negotiated a change to your repayment schedule and you will have to make any repayments yourself once any insurance policy you may have has been extinguished. So what should you do in the longer term if you do not expect the period of financial hardship to come to an end? The first answer is to not panic! There are still many avenues available that may allow you to maintain your home;

  • Sell and rent back services. There are a number of companies that specialise in helping those that are struggling to make mortgage repayments. One of the most popular schemes is a sale and rent back service under which an organisation will agree to buy your house and then rent it back to you. This allows you to stay in your house and escape suffocating mortgage repayments. Such schemes work particularly well if you have equity in your property, as once you have satisfied all outstanding debts you will have a sum of money to reinvest or to use as you wish.
  • Make a quick sale to a company specialising in helping borrowers avoid repossession. One of the problems with repossession is that courts are often reluctant to allow a home owner to stay in a property after an order for repossession has been made since the process for selling a house is often lengthy, with the borrower continuing to accrue interest on the loan and falling further into arrears. A solution is to make a quick sale to a specialist company, thus allowing you to settle any outstanding debts and avoid the negative consequences repossession will often have on your credit rating.
  • Sell an option on your property to give you sufficient funds to pay arrears. Companies specialise in buying options on property that would otherwise be repossessed. Sale of the option gives you, the borrower, funds to clear arrears and thus buys you time to negotiate a sale of the property at the best available price.

Hopefully this has answered any questions you may have had and put you at ease regarding the possible repossession of your property. There are many people out there who can help and, as mentioned above, the best thing to do is seek advice as early as is possible. Here are a few useful links;


(Ref for this page: A Quick Sale)