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Repossession Guide

If you miss your mortgage repayments and fall into arrears of several months, you risk having your home repossessed by the lender unless you can show how you plan to make up the arrears.

During these tough economic conditions, repossessions are becoming more common especially among those who borrowed up to the maximum allowed at the time. Fortunately, low interest rates have meant that fewer homeowners have been repossessed than expected. 

However, repossession is a last resort for mortgage lenders and the majority of mortgage arrears do not end up in repossession. The bank or building society who lent you the money will first try to come to an agreement to pay off at least some of the arrears as well as keeping up with your monthly repayments.

The lender may ask you to complete a budget outline of your household income and spending before coming to an agreement on how much you should pay off the arrears each month. This is a negotiation, so if the figure is too high make a counter offer. Once you agree, you must try to stick to it otherwise the lender – who will already be worried – may not be as sympathetic next time.

Ways to cope with arrears

You could ask for a payment holiday. Some mortgages come with this facility; others may agree to let you off a few months' payments while you recover from an unexpectedly large expense or after you've lost your job to allow you time to find another one. But all the time you make no payments, interest is being added to your mortgage.

Another option is to ask your lender to move you to an interest-only mortgage for a time if you're on a repayment mortgage. Your monthly payments will fall dramatically – you can use our mortgage calculator to find out by how much – allowing you to use the amount saved to pay off your arrears.

But they don't have to let you do this and the Financial Services Authority has clamped down hard on interest-only mortgages. Your chances of being able to do this will be slim if the amount you owe is close to the limit of the value of your property. Do move back onto a repayment mortgage as soon as possible because you're not paying anything off the original loan during this time.  

Another way to reduce your monthly payments is to extend the number of years to repay your mortgage. Again our mortgage calculator will give you an idea of how much less you have to pay. Do remember that the longer your mortgage term, the more you will pay back in interest over this time.

Court action

When your loan falls more than two months into arrears, the lender has the right to seek repossession. However, usually at this point lenders pass the borrower to their debt recovery service, which may be their in-house department or an outside agency which will try to agree a plan of action with the aim of avoiding court and repossession.

Typically, six months of arrears could result in a lender issuing a court action, but this varies between lenders. Before starting a claim for possession, your lender must go through a checklist known as the pre-action protocol which includes giving you all the information about your arrears, discussing your proposals to repay them and, if your suggestions are turned down, giving you their reasons in writing. The lender should also tell you to contact your council housing department and an independent debt counsellor for advice.

Legal action should be postponed if you are complaining to the Financial Ombudsman Service (FOS) or are claiming on your mortgage payment protection insurance (MPPI) or for mortgage interest support. Alternatively, if you're trying to sell your home you should be given more time.

If you come to an agreement on repayment with your lender and fail to keep it, your lender must give you 15 working days' notice in writing before starting a claim for possession. The court will write to you with a date for the hearing. You must reply to the court and you should take independent advice immediately. Shelter has a directory of local face-to-face advice services. 

At the hearing the lender puts forward a claim for possession and you can tell the judge about your circumstances. If you can show that you are able to pay monthly instalments to reduce the arrears, the court will usually issue a suspended possession order.

If an Order of Possession is made, or the borrower defaults on a suspended order, the lender will apply for a bailiff's warrant to attend and evict you. The borrower has a final recourse of appeal if they are selling the house at a reasonable price. In this case, the possession warrant can be suspended.

Lender Initial Rate Duration Standard Rate Overall Cost For Comparison Max Loan To Value Fee
2.59% 2 years 5.69% 5.4% APR 75% £999
2.69% 2 years 4.99% 4.9% APR 75% £495
2.94% 2 Years 5.69% 5.4% APR 75% £199
2.99% 2 years 4.99% 4.9% APR 85% £495
2.99% 3 years 4.99% 4.6% APR 70% £499
3.0% 2 years 5.69% 5.5% APR 80% £999
3.19% 5 Years 4.79% 4.2% APR 80% £995
3.35% To Jul 2014 4.95% 4.6% APR 75% £999
3.5% 2 years 5.49% 5.1% APR 75% £595
3.84% 2 years 3.94% 4% APR 90% £499

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