Mortgage Arrears & Mortgage Repossession

Buying a property and securing a mortgage is one of the largest financial commitments that many of us will ever take on. The dream of home ownership is one that many first time buyers strive to be part of. But with property prices seemingly ever increasing this dream can quickly turn into a nightmare. There is a huge temptation on the part of borrowers to overstretch themselves financially and even falsely inflate their income just to make that first step onto the property ladder.

It isn’t just first time buyers who at times may overstretch themselves financially. There is a very real culture prevalent of ‘buy now and pay later’ amongst many different types of people, including existing homeowners. This may often take the form of large unsecured debts such as credit cards, store cards, hire purchase agreements and so on.

But how does having unsecured debts mean that you put your property at risk?

In theory, having unsecured debts and commitments have absolutely no bearing on the security of your property. However, in reality there are many cases whereby borrowers may be inclined to prioritise their unsecured debt repayments over that of their mortgage or secured loan – this could be due on the main part to the more proactive stance that many unsecured creditors will take once payments start becoming missed – after all, they do not have any charge over a property in the event of borrower default.

Missing payments on a mortgage or secured loan can have very grave consequences, after all, if you do not keep up repayments on your mortgage, your property could become repossessed. This is a stark reality that is facing an increasing number of homeowners in the UK today.

If a borrower fails to meet his mortgage repayments on time then the account will fall into mortgage arrears. It is vitally important to deal with these arrears at the earliest possible opportunity. A large percentage of repossession cases can be avoided in the early stages.

What can be done to assist a borrower in arrears?

A lender may make available a number of options in the event of a mortgage account falling into arrears:
# A reduction in monthly mortgage repayments over a set period of time
# Revert the mortgage from Capital and Interest Repayment to an Interest Only mortgage (where applicable)
# Grant the borrower a ‘payment holiday’
# Extend the term of the mortgage in order to achieve a lower monthly repayment.
# Allow the accumulated arrears to be repaid over a set period of time – usually in form of an increased monthly mortgage repayment.

When problems are left to escalate and negotiations between lender and borrower have broken down, the intervention of solicitors and court action are inevitable.

What does Repossession actually mean?

Mortgage repossession is a legal remedy open to the lender in the event of mortgage default. Once the court has granted a possession order, the lender can legally take full ownership of your property. In most circumstances the property would be sold at the earliest opportunity in order to recover the outstanding debt. Once the lender has recovered their money and paid of any subsequent charges (if applicable) then the remaining balance will go to the borrower.Any shortfall following the sale of a property can be recovered by the lender – the borrower can be pursued for this shortfall for up to 12 years.

The lender must first approach the court to apply for the possession order. A mortgage repossession hearing will be set whereby the borrower must attend to put forward their case. It is rare for the possession order to be granted upon the first court hearing however a there must be evidence of an ability to improve the situation in the future. It is highly likely that upon a satisfactory first hearing, a suspended order may be granted. Any arrangement set up by the courts must always be abided by.
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