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The Council of Mortgage Lenders says the number of cases in arrears at the end of September was 168,000 – 8pc higher than the 155,600 in arrears at the end of June. They are expecting up to 170,000 arrears by the end of the year.
The CML also said that 11,300, properties were repossessed – 12pc higher than the 10,100 in the second quarter of 2008. The CML expects a massive 45,000 repossessions by the end of the year.
Granite, a part of Northern Rock, disclosed that mortgage customers were 90 days or more behind with their payments on more than 2pc of £35.5bn of mortgages. That compares with less than 0.5 per cent of mortgages that were 90 days in arrears in mid 2007.
If you are in financial difficulty here are some useful steps to help you.
1) WHAT DEBTS DO YOU HAVE – Write them down in full detail.
You need a clear idea of your own financial situation, write down all your debts, using software such as Microsoft Excel can be useful to help include the interest you are paying and prioritise the debts. Make sure this figure covers everything, food, fuel, gas, clothing, loans, council tax etc. Then add 5% to this figure just to be safe!
2) TALK WITH YOUR LENDER
As soon as you miss a payment on a loan, what ever the type, mortgage, credit card or car loan this will trigger the lender to automatically start sending out letters to help resolve this problem. DON’T bury your head in the sand and think that this will all go away, it won’t until you have sorted it out with your lender… to their satisfaction.
Open up a dialog with your bank, make sure that you record all the conversations you have with them (on paper, not audio) take down the date, time, name of the person you are talking with, their position, location and extension number. This is crucial information. Tracking the efforts you have made to fix this problem can be crucial if it is ever taken to court. Track every conversation.
Ask your lender for a payment holiday, switch to an interest only loan instead of paying the interest and capital or you can try to extend the life of the loan thus bringing the payments down.
Offer to pay what you can each month, even if it is just a small amount. Be seen to be committed to solving this problem as we have mentioned. A new part time job, recording conversations on paper outlining your calls and letters to the lender will all be favourable for you in a court.
3) TAKE A SECOND JOB – You probably need more money coming in.
At this point we suggest taking up a second job if you think you are going backwards financially, even if its 1 night a week stacking shelves at the local supermarket that money will add up and could be exactly what you need to fix this problem sooner than later. It is also a great piece of evidence in court and with your lender to prove that you are trying to fix the issue yourself.
4) COUNTY COURT JUDGMENTS – Abide by them and have an easier life.
The day you miss a mortgage payment, credit card or loan payment will be the day that the financial institution connected to that loan will come looking for answers. Often their first point of call is to work out a payment plan. The payment plan will take into consideration your financial circumstances from which a suitable payment plan will be agreed to between yourself and the lender. Make sure that you really can afford to follow the payment plan otherwise if you break that, well, that’s when a county court judgment against you probably will be taken out.
5) NEGATIVE EQUITY – Its not as bad as it sounds.
Ok… its not great, but all it means is that you bought a house for £100,000 with a 90% Loan to Value (LTV) so you put £10,000 in as a deposit and the bank put in £90,000. The day that your house or investment is worth less than £90,000 then you are in negative equity, the bank is owed more than the house is worth. Banks don’t like this position. Clearly those home owners who borrowed at 100% have a greater likelihood of falling into negative equity than those who borrowed at an LTV of 75%.
As house prices slip more and more borrowers are being hit with negative equity. If possible, try and keep up repayments and ride out the storm until house prices increase again. They will come back up at some point but to meet the highs of summer 2007 this could be 3 to 5 years time. However, history shows that property prices do rise over the long time.
6) USE YOUR MORTAGE INSURANCE POLICY
Many people will have insurance on their mortgages or sometimes through their work. Usually a product which is sold at the same time as your mortgage and which will pay your mortgage for you (usually after 3 months) if you have been made redundant or can not work due to illness. Read your policy carefully and explain to your lender that you do hold such a policy and that money will be on its way shortly. The lender will usually prefer to wait for this than repossess your home. Banks don’t want to have to sell your home, it costs them money and time and they would simply prefer the mortgage to be paid off.
7) SEEK INDEPENDENT ADVICE – Much of this can be got for free
There are a number of very useful and free services for people in financial difficulties. Again, keep positive, act fast and call or make an appointment with Citizens Advice and the Consumer Credit Counselling Service. Sometimes they will negotiate with lenders on your behalf and in all cases they know how the system works a lot better than the average man, which in its self can save you a lot of time and hassle.
Due to an increase in repossessions and financial difficulties getting help from some organisations has been increasingly difficult. So once again, act fast so you are first in the queue.
A repossession will seriously damage your credit rating, making it difficult for you to get credit cards or loans in future.
If it actually comes down to a repossession there are better ways of selling your house than through a bank.
OPEN MARKET SALE
Banks simply take your house to an auction house like Allsop, the bank receives what ever is the top bid, they then remove their own “handling fees” and then if there is anything left after your debts have been removed you will usually receive this amount. The problem is that houses sold at these auctions are usually sold at a bare minimum price compared to what you could sell your house for on the open market given suitable marketing by a reputable agency. Its best to be realistic on prices, speak to local agents and see what they really think they could sell your house for, actually sell it for, not what they will market it for. Make sure you understand the time frames involved and look at the market with your own eyes, ask the agent what recent sales they know of in the area similar to your house. Don’t expect to get more, in fact in this climate think less!
SALE AND RENT BACK
Another method which has been used more and more is selling your home and then renting it back. Simply put, you agree to sell you property to a “sale and rent back” company usually at 80% to 90% of its open market value. You get to stay in your house but now as a renter.
Usually you will agree with the purchasing company to rent for a set period at a set rent, most likely 1 or 2 years and at a rent slightly higher than market. The advantage is that you and your family will not have to move, no county court judgements will be brought against you affecting your credit, the bank is paid off and life continues on… well that’s the plan. We would suggest that you look at these offers very carefully. read all the fine print and make sure you understand every line of it, exactly what is being offered by the contract. What are their fees? What rent are you required to pay? What are the time frames? Guarantees? Can you break the rental contract? Is this offer fair or would it be better just to accept repossession via the bank at auction? When you sell your house and rent it back will all your debts and the mortgage be paid out or will you still be left with money owed? Sell and rent back can work brilliantly… but it can also be a disaster. Tread carefully!
MoneyWise.co.uk – 10 steps on how to avoid house repossession.