A lot of people struggle with the cost of owning a home. Property provides one of the biggest financial burdens people face in their lifetime, with many people stretching themselves to be able to afford to put a roof over their heads. The cost doesn’t end when you get the keys either – indeed, this is just the ‘end of the beginning’, given the ongoing cost of paying a mortgage and footing the bill for any repairs required.
With this in mind, it’s little surprise that some people struggle to keep up. The Financial Conduct Authority points out that there is more than £15 billion in late mortgage payments owed in the UK. While this figure has fallen in recent years – especially since the 2008/9 recession – it’s clearly a significant amount. Indeed, more than 80,000 people are in arrears of more than 2.5% of their outstanding balance.
For homeowners – and especially those with arrears – the biggest fear is that matters will get out of hand and that, ultimately, this might lead to their property being repossessed. Clearly no-one wants to let matters get this far, but how do you stop falling into trouble so deep that it means you lose your home? Here’s our ten step guide to help you to stop repossession:
The number of people with mortgage arrears of more than 2.5% of their outstanding balance
When times are good, it’s easy to get carried away. The cost of borrowing has been low in recent years, making it cost effective for people to take out loans and credit cards to make big ticket purchases. However, while this can be manageable, a change in your circumstances could soon alter the picture. Losing your job, for example, could easily mean that this sort of debt weighs heavily on your shoulders and affects your ability to pay your mortgage.
The Bank of England recently raised concerns about credit card debt, which accounts for £70 billion of the UK’s £200 billion of personal debt. Alarmingly, nine of every £10 of outstanding credit card debt in November 2016 was owed by people who were in the red two years earlier, implying that a significant number of people are stuck in long-term debt.
It’s important, therefore, to focus on tackling your debts as soon as possible to avoid these creating or adding to problems down the line. Avoid just paying the ‘minimum repayments’ on your credit card, as this will not chip away at your debt (even just a few pounds more can make a difference) and prioritise clearing old debts before taking on new spending.
For many, their mortgage allows them to pay a little more than the set amount each month (often this is 10% a year, although each provider may have slightly different rules so you must check). This process of ‘overpaying’ can come in very handy if your circumstances change in the future, as it allows you to build up some extra equity in the property you own and also earn some brownie points with your lender. If, for example, you were to lose your job and struggle to make your repayments, this extra funding buffer can really help.
You won’t pay interest on overpayments and you might well find that your money ‘works harder for you’ by paying more off your mortgage, rather than sitting in a savings account with a low interest rate.
Overpaying £50 a month on a £150,000 25-year 4% mortgage would help you pay this off more than two years earlier.
(source LONDON & COUNTRY)
It’s impossible to predict what will happen in your life over a 25 or 30 year period, which is why it’s tough to commit to a mortgage and know that you’ll be able to make the repayments. This is why many people choose to take out insurance policies. It’s not nice to think about, but people in a couple need to consider what might happen to their partner if they were to die, or to both of them if they were to suffer a serious injury that would prevent them from working.
Your house is an expensive asset so it’s worth protecting. It is possible to get policies that can pay out in case of loss of life, illness or even a drop in income.
Only half of mortgage holders have life cover. Fewer than a fifth (17%) have critical illness cover and fewer than one in ten (7%) have income protection.
How well do you understand your finances? Do you know how much comes in to your account each month? Which bills go out, on which date and for how much? How much do you spend on essentials and what do you have left over for treats?
If you’re in full control of your money, you stand a better chance of avoiding your situation spiraling out of control. If you don’t already have a budget plan – and 40% of people in the UK don’t – then it’s time to start now. Go through three month’s worth of accounts, understand your spending habits and then use a budget planner tool to help you to take control of your money.
The top reasons people put off budgeting
Most people know, deep down, if things are starting to go wrong. Whether it’s a missed bill, dropping deeper into an overdraft or a diminishing savings pot, we can all spot a cause for concern. A really important step to avoiding repossession is to take note of these signs and act as quickly as possible. Hoping the problem will go away is not an option and could allow a smaller issue such as a missed credit card bill to build up into a bigger debt problem that contributes towards repossession.
Many people fall into financial hardship if they lose their job and when it comes to this, and other times of hardship, you might well be able to call on the welfare state to help.
Some people feel nervous or embarrassed about claiming benefits but it’s important to stress that there’s no need to feel like this. Such support exists to help people in tough situations and can be the difference between a financial struggle and a disaster. If nothing else, the welfare system might stop you from having to raid every last penny of savings, which leaves you prone to further problems down the line.
£10 billion worth of benefits is said to go unclaimed each year.
(source Church Action on Poverty)
Three quarters of people on working age benefits feel shame about claiming, either sometimes, most or all the time
As soon as you suspect you might be in trouble with your mortgage provider, you should talk to them. Don’t be afraid – honesty is the best policy here. Remember, they want to be able to recover their money so it is definitely in their interest to try to establish realistic payment terms that you will be able to stick to.
It might well help for you to do a little bit of preparation before you contact your mortgage lender. If you can show you have a sound budget plan and make them an offer of what you can pay, you’ll show that you’re a responsible borrower and are keen to fulfil your responsibility.
1.4 million UK households say they are struggling to pay their mortgage and 2.6 million people think their monthly mortgage payments are too high.
(source L&C Mortgages)
It’s also important to recognise that there is help at hand if you feel you are losing control of your finances. Free and impartial advice is given by trained advisers at bodies such as Shelter or the Citizens Advice Bureau. These charity bodies are experienced in helping customers to find the information and support they need. Other examples of organisations helping with this are PayPlan, StepChange and the Debt Advice Foundation. These bodies can offer over-the-phone advice and often have useful guides and resources freely available online for you to read and use.
Citizens Advice Bureau advisers dealt with more than 1.5 million queries about debt in the 12 months to the end of January 2018. 57.9% of the CAB’s queries in this period were about either debt or benefits and tax credits.
It’s only natural to be attached to your home, but sometimes a property can become too much of a burden. However, it’s important to try to ensure that this is done on your terms so that you can plan to downsize and stay in control of the situation.
We Buy Any Home offers a ‘no fee’ solution to anyone facing repossession and free advice to those with mortgage difficulties. We can also help to process a fast house sale and work with your mortgage lender to inform them of a pending sale.
In the third quarter of 2017 there were 1,900 home repossessions in the UK.
Lastly, if your case does get to court, it’s important to engage with the proceedings – attending hearings and providing evidence and paperwork when required. Even at this stage it might be possible to make an offer to the court and stop the repossession of your home – although you should take legal advice and only act on the instructions of a professional.
Number of repossessions carried out by county court bailiffs: