Over thirty thousand homes have been seized by mortgage lenders this year. Here's how to keep the roof over your head.
According to the Council of Mortgage Lenders (CML), mortgage lenders seized 11,300 properties in England and Wales between July and September. This is an increase of almost an eighth (12%) on the number repossessed between March and June.
In the third quarter of this year, the number of borrowers in arrears rose to 168,000, which is up a twelfth (8%) on the previous quarter. Also, the courts are awarding more repossession orders to lenders: these rose by 3% in the quarter to 29,516 in Q3. However, not all repossession orders lead to homes being seized -- around half are suspended in order to allow lenders and borrowers to come to an agreement.
The worst is yet to come
Of course, as the economy falls into recession, unemployment rises and house prices continue to fall, more and more homeowners will struggle to make ends meet. In addition, many homeowners are suffering `payment shock' as they struggle to replace a previous low-rate home loan. Furthermore, the `mortgage famine' continues, as borrowers without large deposits are forced to pay higher rates.
Hence, mortgage arrears and repossessions are sure to rise, despite recent dramatic cuts to the Bank of England base rate. Indeed, the CML estimates that there will be 45,000 repossessions this year -- and perhaps even more in 2009. Then again, there are 11.8 million mortgaged homes in the UK, so only 1 in 262 homes (0.38%) will be seized by mortgage lenders. Alas, this news will offer no relief for those people facing this outcome.
Another problem is the growth in `jingle mail' -- where homeowners hand back their keys and walk away -- and forced sales. In today's Times, the National Association of Estate Agents (NAEA) warns that five thousand properties a week are being put up for sale by homeowners struggling with mortgage repayments. More than half of NAEA members said at least a fifth (20%) of sales were brought on by financial problems. Even more worrying is the news that one in five estate agents admitted that half of properties on display were from forced sellers.
It's worth pointing out that mortgage repossessions were far higher in the last property slump. They peaked at a record 75,540 in 1991, before falling steadily until they reached a low of 8,200 in 2004. Last year, 26,200 homes were seized, so this year's estimate of 45,000 would be a rise of more than seven-tenths (72%).
Of course, repossessions should be a last resort for mortgage lenders. After all, banks and building societies don't want to seize properties and auction them off at fire-sale prices. In some cases, the sale price fails to exceed the outstanding mortgage debt, leaving the lender out of pocket. In these cases, the lender usually claims against a mortgage insurance policy and/or goes after the borrower for its loss and legal expenses.
Help to hold onto your home
Of course, the government is desperate to help voters to hold onto their homes. Last month, the Civil Justice Council (which oversees and co-ordinates the civil justice system) launched its Mortgage Pre-Action Protocol [four-page PDF file; requires Adobe Acrobat Reader].
This document lists the steps that the courts expect mortgage lenders to take before attempting to repossess a property. In essence, it encourages lenders to explore all other avenues before seizing a borrower's home. Alas, these are merely voluntary guidelines, and not a set of legal procedures for lenders to follow. Indeed, these `best practice' guidelines are already in use among leading mortgage lenders, so there's nothing really new here.
In addition, the government is setting up a £200 million mortgage-rescue scheme, offering more free legal representation in county courts and aims to boost the free debt-advice services offered by Citizens Advice and similar bodies.
Then again, it's up to you to take whatever steps are necessary to hang onto your home. For example, you need to pay your priority bills first: the acronym THEM FIRST shows you how. Likewise, you should identify what got you into financial difficulty in the first place. Often, the answer is obvious, such as unemployment, sickness or losing overtime.
However, almost a quarter (24%) of mortgage arrears is caused by financial mismanagement, as I warned in How To Burn Down Your House. If you're in this situation, I suggest spending some time in our Get Out of Debt centre.
Finally, look out for Chancellor Alistair Darling's Pre-Budget Report on Monday afternoon, which is expect to contain more bungs for harassed homeowners...
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