There are new rules to help tackle repossessions, but will they work?
There's some good news for homeowners after the government announced new guidelines to help protect those people struggling to keep up with mortgage repayments.
Gordon Brown said last week that repossessions should only be seen as a last resort and that lenders would need to prove that every other alternative had been sought before a repossession could be granted in court.
The number of repossessions is rising rapidly as a result of the credit crunch, with the Council of Mortgage Lenders (CML) expecting the number of repossessions to climb to around 45,000 this year, up from last year's figure of 26,200. The number is expected to be even higher next year - a very scary thought indeed.
The new protocol, which will take effect from 19 November, is designed to encourage parties to exchange information at an early stage to help bring about early settlement of cases, or where that cannot be avoided, more efficient case management. Discussion between the parties may include options such as extending the term of the mortgage, changing the type of mortgage, deferring payment of interest due under the mortgage, or capitalising the arrears.
The new guidelines will be welcome news to certain charities who have argued that some lenders have been too quick to turn to repossessions, rather than negotiate with the borrower.
Northern Rock has been named as one of the worst culprits, and is twice as likely as other lenders to repossess a home if borrowers fall behind with their mortgage payments, according to debt charity Credit Action.
How can I avoid repossession?
There are a number of options you can consider to help you avoid repossession if you are struggling to meet your mortgage repayments.
First and foremost, you should get in touch with your lender and explain your situation so that you can continue to pay off what you can afford. Your lender should deal with your case sympathetically and positively and the sooner you make contact with your lender, the better. Communication is key!
Take a repayment holiday
If your financial situation has changed recently, such as you have been made redundant, one option you could consider is taking a repayment holiday for two or three months - assuming your lender is willing to let you do this. By choosing this option, you will be able to take a step back and sort out your financial situation without having to worry about your mortgage repayments.
It is important to remember though that this is only a temporary solution and you will have to make up these repayments in the future. You will also be paying a higher total interest bill as a result of suspending your repayments.
Switch to interest-only payments
Opting for interest-only repayments is another possibility, so contact your lender to find out whether this is suitable for you. With an interest-only mortgage, monthly payments to the lender are all interest so you don't pay off any of the capital during the term of the mortgage. Instead, you pay it all off at the end, having made simultaneous monthly payments into some sort of investment fund.
Ensure your mortgage is your first priority
All other debts such as your credit card or a personal loan should come second to your mortgage repayments. It may be worth contacting your credit card or loan company to see whether you can temporarily put any repayments on hold due to your financial situation to ensure your mortgage comes first.
You should also consider other ways to reduce your outgoings so that any spare cash can be put towards your mortgage.
Contact a debt adviser
Organisations such as the Consumer Credit Counselling Service (CCCS) or the National Debtline are worth contacting as they can help you to come up with a realistic and affordable budget plan which will help you when you are negotiating with your lender.
Ensure you attend all court hearings
If you have missed several monthly repayments you will probably be called to a court hearing. As scary as this may sound, do make sure you attend because if you can show you are prepared to meet your repayments, you will receive more support from the court.
Will the new guidelines work?
The fact that this guidance has been announced is certainly a step in the right direction. Anything that could potentially help to reduce the number of repossessions has to be good news.
However, there are a number of shortfalls in this new protocol. For a start, the guidance does not stipulate what penalties lenders will face if they do not fully negotiate with borrowers first. Furthermore, it's not actually a law, it's only a set of `rules', so no one will actually be forced to stick to it. This means it is hard to say exactly how much of an impact it will have at the moment.
Despite these issues, the new protocol should be a big help to those people who are currently struggling to meet their mortgage repayments. The CML also published new industry guidance last week on mortgage arrears and possessions which will help lenders ensure that their arrears management policies fulfil the objective of making repossession a last resort.
This should certainly provide some encouragement to all those affected and help them to understand the alternative options available. In turn, this should mean that more people are able to keep their homes, which is good news for everybody!
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