The number of properties that are being repossessed has risen sharply over the past few months and with house prices continuing to fall the situation will only get worse.
The Council of Mortgage Lenders (CML) said that that the number of homes repossessed in the first half of 2008 stood at 18,900 - a 48 per cent increase compared with the same period last year. This figure compares with 13,400 in the second half of 2007, and 12,800 in the first six months of 2007.
Citizens Advice head of consumer policy Sue Edwards said: "We are concerned about the increase in mortgage arrears and repossessions revealed in the latest data from the Council of Mortgage Lenders as we are continuing to see high numbers of people coming to see us with mortgage and secured loan arrears.
"In too many cases lenders are still not doing everything they can to help borrowers in trouble, piling on extra charges, not negotiating with borrowers to come to a workable solution over repayment arrangements and using court action as a first rather than a last resort.
"To prevent the mortgage crisis deepening, it is vital that all lenders do everything in their power to help people avoid losing their homes: treating borrowers in arrears fairly and sympathetically, being willing to negotiate with borrowers in trouble and only using court action as a last resort."
Repossession orders are the final step taken by a bank or building society before seizing a property from an owner who has not paid their mortgage. They are not made if you simply slip into negative equity, where the value of your mortgage is more than the value of your home.
Negative equity becomes a problem if you sell or are forced to sell your property. The homeowners deemed most at risk are those that have borrowed from debt consolidation companies to pay off multiple borrowings such as credit cards and personal loans. This is because most consolidation loans are secured against the property.
If borrowers default on these so-called "second charge'' mortgages, their homes are at risk - even if they are up to date with their main mortgage repayments.
If you think that you could be another repossession statistic do not simply hand your keys back to the lender. This has been aptly dubbed "jingle mail" in America, where negative equity has been a severe problem for very large numbers of homeowners caught up in the sub-prime crisis.
But lenders do not necessarily want to repossess your property - it is only when all else has failed that the bailiffs are called in. Not only is the process costly but lenders can see their profits hit in their wholesale funding arrangements as well. It is in their interests to come to a suitable arrangement.
The first advice if you are worried about slipping into negative equity is to reduce your debt, if you can. Most mortgages these days allow you to repay up to 10 per cent without penalty but even smaller reductions can help.
It might make financial sense if you have spare cash in a savings account. With standard variable rates at around 6.5 per cent, you would have to earn net interest of 8.12 per cent on a savings account - which is nigh on impossible.
For higher rate taxpayers you would need to get a return of 10.8 per cent to negate losing out on your mortgage interest.
If you are having difficulty with your repayments you should contact your lender. Lenders should be willing to listen to homebuyers' suggestions - guidelines from the Financial Services Authority have ensured that.
Even if they do not, a court will make them do so, if you present a sensible alternative when the lender applies for repossession.
"Anyone who is falling behind with payments on a mortgage or secured loan should speak to their lender straight away. Lenders should negotiate with borrowers, but if you are having problems, make sure you seek free, confidential, independent advice without delay,” says Edwards.
If the worst comes to the worst, it is possible to come to an arrangement with your lender to sell and repay any shortfall over a period of time.
Thousands of homeowners did this in the early 1990s - the last time negative equity struck. However, you will need the lender's permission to sell a property for less than the outstanding mortgage and you will need somewhere to live.
If you do hand back your keys, your credit rating will be affected for at least six years and remember that lenders can pursue you for up to six years for any money left owing after they have sold the property.
The most obvious option for homeowners worried about negative equity is to stay put. History suggests that while property values fluctuate, they rise over the long-term.
Many homeowners who are teetering on the edge of negative equity at the moment may find the position reversed in a few years. But you may have to wait a while - a reversal in prices is not expected in the near future.
Edwards added: "Receiving court papers doesn't mean that you are going to lose your home. Getting advice, even at this late stage, can help the majority of people come to a workable agreement with their mortgage lender and can make all the difference between saving or losing their home.
Source: http://www.telegraph.co.uk |
