Why losing your home is always a last resort

Worried about repossession? Don't panic there are lots of other options to explore first, says Simon Read
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The Independent Online

This year lenders will seize 200 homes a day from hard-pressed families. The Council of Mortgage Lenders says that 75,000 properties will be repossessed in 2009. That's almost three times as many as in 2007 and two-thirds higher than last year.

We haven't had that level of repossession since the property crash of the early Nineties when an estimated two million people fell into negative equity. With property prices slumping and unemployment soaring, it's clear that more families than ever will experience the pain of repossession this year, yet lenders say they do everything they can to avoid taking over people's homes.

"Repossession of a property is always the last course of action for any lender," says Heather Scott of the Halifax. "It is always the result of a long process in which we work very closely with the borrower and the courts. We always work with people to help them stay in their home."

That's the not the experience of James Cousins. The 41-year-old IT project manager ended up out of work in 2007 after an overseas contract didn't work out. He since picked up a short-term project and even turned his hand to driving a cab to raise cash, but the damage was done.

Unable to afford to repay his 195,000 mortgage, he fell into arrears. And since then he feels his lender Mortgage Express part of the collapsed Bradford & Bingley bank has failed to help him. For starters they refused to let him out of his by now expensive 5.99 per cent fixed-rate deal unless he stumped up thousands for a redemption penalty, which he can't afford.

Switching to a less expensive deal would mean monthly repayments would become more affordable and shrink from the current 958 he has to find. But the bank said no, even though by doing so they were heaping further mortgage misery on James. When the arrears reached three months in February apparently a tipping point the lender's collections department issued James with a "pre-litigation letter", threatening him with repossession unless he paid the now 4,500 arrears.

"I've always kept them informed about what's going on," says James, who lives in Sittingbourne, Kent, with wife Beverley, 48, and daughters Sharrona, 24, and Chantelle, 21. "And we've been paying money back whenever we can." But with Beverley also losing her job at a local branch of Clinton Cards this year the amount they've been able to repay has fallen, even after the family has cut back on lots of other things.

"I'm trying desperately to find a job but I need some understanding from the lender," says James. "If I can get work, we'll soon be back on track, but at the moment the situation is out of my control and if the lender moves ahead with repossession, we will lose our home."

Tens of thousands of people will face the same situation this year. James has contacted his local MP and is trying to get as much publicity as he can for the issue. He has even set up an anti-repossession group on Facebook, the social networking site.

His campaign seems to have encouraged his lender to slow down its repossession plans which, he hopes, will give him time to find a job and get straight. He's also hoping to hear good news in next Wednesday's Budget. "I'm pinning my hopes on good news in the Budget next week. I've heard that there will be support for struggling homeowners which I should qualify for. The money will help me survive until I get my career back on track," says James.

What should you do if you are facing repossession?

Avoiding repossession means being honest with yourself and your lender. If you lose your job, or your income is cut, it's essential to take control of the situation, rather than letting things spiral out of control and lead to you losing your home.

If you think you may struggle to meet mortgage repayments, the first step is to take a close look at other costs to see where you can cut back, advises Peter O'Donovan, mortgage manager at independent financial adviser BestInvest. "Go through your bank statements to see where you are spending money. Ignore the things you can't change, essential bills and so forth, but highlight areas where you may be able to cut back. If you're a member of a gym or have satellite TV, for instance, you could save a lot by cancelling both."

If cutting back still doesn't make the mortgage affordable then admitting to yourself that you can't afford it is an important step and it will make it easier to ask for help. Lenders don't want to repossess as it gives them an administrative headache and they will lose money, so most should be willing to discuss options and suggest ways to help.

But it's important to contact them as soon as you get into financial difficulties, advises Lee Bramzell, chief executive of PropertyIndex.com. "Contact your bank or building society as soon as you see a problem ahead. The Government is encouraging lenders not to repossess property unless strictly necessary and most lenders will be happy to discuss your predicament.

"Ask your lender if they will offer you a mortgage holiday or if your bank will restructure your debts to ease your burden. Consider extending the period of your home loan or look to remortgage as there are some very good deals about especially for those with a decent amount of equity locked up in their home."

If there is no other option than to sell your home, then make that decision yourself, rather than ignoring things and letting the lender act. "If there is no likelihood of being able to meet the repayments, then an agreed house sale with the lender suspending action as the borrower actively markets the house themself could be the best solution in the long term," says Louise Cuming, head of mortgages at Moneysupermarket.com.

What help does the Government offer?

Last autumn, Gordon Brown trumpeted his new Mortgage Rescue Scheme which aims to help people in serious difficulties. However, to be eligible for the scheme you must be in "priority need". This means either you're pregnant, have dependent children, or are vulnerable because of old age or a physical or mental impairment. It's expected that only 6,000 people will qualify in the next two years.

Help may also be available from the Homeowner Mortgage Support Scheme, which is currently being developed. It could help by reducing your monthly mortgage payments for a fixed time while you get back on your feet; in other words it's a Government-backed payment holiday.

"With the number of repossessed homes forecast to rise significantly this year, the government needs to do more," says Melanie Bien, director of independent mortgage broker Savills Private Finance. "It is already asking lenders not to proceed with repossession hearings for at least six months and is encouraging housing associations to buy properties and rent them back to their owners, plus the Homeowner Mortgage Support Scheme will allow borrowers to take a payment holiday if they have suffered an income shock. But the Government must ensure that lenders are reasonable and act the same way so that borrowers know where they stand."

The Government has an opportunity to improve things in the next Budget. The Council of Mortgage Lenders wants income support for mortgage interest (ISMI) and mortgage rescue to be expanded. "We would like to see more widespread availability of mortgage rescue, particularly the option for households to convert their mortgage payments to rent," the CML says.

Meanwhile, housing charity Shelter says: "The Government should strengthen the safety net for people in danger of being repossessed, by improving both state and private mortgage protection."

Repossession: What to expect

*Your lender must follow certain steps to ensure that your home is repossessed only as a last option. These steps are outlined in a "pre-action protocol" which sets out what you and your lender must do.

Lenders must tell you what you owe and any charges you'll have to pay on your debt. They must consider any reasonable request from you to change the way you pay or let you know within 10 working days why they won't accept your repayment offer.

If you don't keep to an agreement, your lender must warn you in writing that it plans to start court action, giving you 15 days' notice of the action they plan to take.

That needn't be the end of it though. There are a number of situations where your lender may postpone repossession action. If you have a mortgage payment protection policy you should claim on that and tell your lender. It should postpone repossession action while your claim is being processed and cancel it altogether if your claim is successful.

If you think your lender has treated you unfairly you can complain to the Financial Ombudsman Service (FOS). Your lender may postpone the repossession while the FOS is dealing with your complaint although lenders can continue with repossession by giving you five working days' notice of their plans.

Finally, you can delay repossession by selling your home yourself. Your lender may agree to delay if you show you are taking reasonable steps to sell. You can get help from an independent financial adviser to ensure you are following the right steps to sell your home.

Help with debt and repossession

*Shelter: 0808 800 4444 or www.shelter.org.uk

*Citizens Advice: Go to www.citizensadvice.org.uk or check your local phone book for your nearest Citizens Advice Bureau

*Consumer Credit Counselling Service: Call 0800 138 1111 or visit www.cccs.co.uk

*National Debtline: Call 0808 808 4000 or visit www.nationaldebtline.co.uk

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