Property Repossessions During COVID 19
Get to know all the ins and outs of property repossessions and how to avoid them during COVID 19.
For most of us, property repossessions fall under one heading - taboo subjects we should NEVER discuss, much like gambling debt, unemployment and public humiliation.
When in actual fact, this couldn’t be more wrong - particularly in such uncertain times, where the phrase ‘impending recession’ is spreading through the media faster than coronavirus itself.
Therefore, it’s no surprise that as we head towards 2021, property repossessions are expected to rise, significantly.
If you’ve ever wondered how many properties are repossessed in the UK, the answer varies quite a bit. Last year, there were less than 5000 - 4580 to be precise (Gov.uk) – which is the lowest property repossessions have ever been since the 1980s.
But rewind the clock to 2009, and in the aftermath of the financial crash property repossessions were more than 10 times as frequent!
So with the future economic decline predicted to have comparable, or even worse impacts on the economy, having a clear understanding of property repossessions and how to deal with them is key.
So, what do you mean by the repossession of property?
In a nutshell, a property repossessions are a consequence of your lender applying to the court for a possession order to sell your home, as a means to pay off any mortgage arrears.
For any lender, the repossession of property is a last resort – you could call it their safety net. So, it’s worth remembering that being open and honest with them about any difficulties you may have is always the best policy.
What are mortgage arrears?
Mortgage arrears are what’s known as a priority debt.
These are debts of a higher authority, which you MUST pay off before any credit cards, car loans or other forms of borrowing.
Missing as little as one mortgage payment can have you in arrears, although a handful of lenders do allow an ‘unofficial’ 15 day period for you to make payment before they choose to contact you in person.
See, lenders all operate around the metric of risk, which is why those entering arrears are sending them a significant red flag.
Manage to stay out of arrears and the chance of any property repossessions are far less likely.
Want to expand your knowledge of mortgage arrears? We’ve written an entire article specifically on the subject.
What causes property repossessions?
The repossession of property occurs after a series of missed mortgages. Most lenders will take action after three, although it’s worth noting that some may be slightly more, or less strict. But while that’s the cause of repossession from a lender’s perspective, it’s not necessarily the cause you should focus on.
More than often there’s a valid reason behind a series of missed mortgages. It's recognising and rectifying this, that can often be the secret to stopping a house repossession.
With this in mind, here’s 4 hacks to help you escape arrears and put a stop to any property repossessions, plus some wild cards to avoid you getting there in the first place…
Stop property repossessions and repay your arrears in instalments
By far one of the simplest tactics to prevent property repossessions is to repay your arrears in instalments.
For instance, if you’ve missed one payment of £300 you could overpay £100 for 3 months.
Assuming this is approved by you lender and you have the available funds to do so, overpaying on a regular basis is a easy fix.
It’s also a great way to show your lender that you have good intentions and rebuild their trust in you a borrower.
Something that could work in your favour in the unfortunate event of a repossession.
Suspend repossessions by increasing the term on your mortgage
Another strategy to reduce the likelihood of property repossessions is extending the duration of your mortgage, known by lenders as the mortgage term.
Now, this may mean that you pay more interest in the long run, but if doing so makes your payments slightly lower and more manageable, it could be a good option when faced with the possibility of property repossessions.
Reduce likelihood of house repossessions, by reducing your expenses
Evaluating your expenses is an essential life skill – one that we advise you practice regularly, as doing so could give you more financial flexibility to help you avoid mortgage arrears or worse, the repossession of your property.
Expenses can be anything from food bills and car payments, to an expensive pairs of shoes or last year’s Christmas presents.
In short, anything that takes money out of your pocket. But luckily, if your finances are making you fear property repossessions, it’s very easy to make a quick saving, with nothing more than the click of a button.
And it’s not as if there’s a shortage of ways to do so.
Ask us though and the best strategy is to get yourself on a comparison site.
Enter your details and you’ll receive offers of car insurance, broadband, phone contracts, and various other products, that are hopefully cheaper than what you’re currently paying.
There’s a variety of sites out there all offering slightly different deals, so it’s worth shopping around - our favourite is Compare The Market.
Still not sure how comparison sites could prevent you missing a mortgage payment? Learn how money saving expert, Martin Lewis, used these sites to help a customer get PAID for taking out their home insurance!
Although, it’s not just about cutting costs. In many cases it’s about getting rid of them all together.
Deciding whether your expenses are necessities or not is a great places to start... if you can live comfortably without it, chances are you can afford to let it go.
Ask us, and we’d recommend doing so sooner rather than later. Being behind on a large loan like a mortgages can have a noticeable effect on your credit score. A factor that if low, can limit what you can do here.
NOTE: Switching your expenses can sometimes come with a cancellation fee or admin charge, so it’s worth looking into these before making any final decisions.
Ward off property repossessions with your equity
If your house is worth more than what you owe on your mortgages, you may be able to avoid house repossessions by do what’s called ‘capitalising on your arrears’.
This is where, providing you have over a 50% stake in your property, your lender lets you add any debt onto your existing mortgages.
However, it’s worth remembering that this would most likely be subject to valuation, particularly if you’ve had the mortgages for some time and no recent surveys. Have a solid house though and this could be a useful lifeline in the event of any property repossessions.
Get on the job hunt and avoid arrears
If you’re fearing property repossessions because you’re one of the 1.5 million people who have lost their job due to coronavirus, you can’t afford to sit around.
COVID 19 has already had significant effects on employment across the majority of industries, including niches like aviation, theatre and oil & gas drilling. So, keeping an eye on the current situation is always a wise idea.
But, it’s all doom and gloom.
As a consequence of the coronavirus, many industries are thriving. Manufacturing for instance, has grown significantly with the sudden demands for PPE.
Health and Nutrition has also seen a spurt in popularity, as we all become increasingly health-conscious. And it’s much the same for the Chemicals industry, which has been boosted by the rising demands for cleaning products. If you specialise in a transferable skill, such as marketing or sales, we'd suggest giving jobs in these industries some consideration.
TOP TIP: If you can’t find a new career yourself, try picking up the phone to a recruiter.
Put a stop to property repossessions with your pension pot
Another preventative measure you can take to avoid house repossessions is to tap into your pension pot or endowment policy (life insurance). If this seems like a valid option for you, be sure to get it okayed by both your lender and pension provider first.
The last thing you want to do is promise your lender repayment in full, only to be told ‘no’ by your pension’s provider. False promises won’t go down well with lenders and could make them less willing to cooperate with you in the future. Hardly ideal if you’re a missed payment away from repossession.
LTVs (One to know before you take out a mortgage)
house repayments consist of two main parts – your stake in your property, and the lender’s stake in your property.
The ratio of the two is commonly reflected as a percentage and known as the Loan To Value, or LTV for short.
LTVs differ depending on the size of your deposit and price of your purchase. So, for instance, if you put down a £25,000 deposit on a house worth £100,000, the LTV would be 75%.
As a general rule of thumb, we’d say aim for the lowest LTV possible – 50% or below is a good place to be.
Why? Because if in the event of arrears, you can sell your property to any cover the costs, providing the property's held its value. Consider this from the get-go and you can out any worries about property repossessions to the back of your mind.
NOTE: Many of the strategies above may be subject to processing/ admin fees, so we'd always advise you look into these costs before making any firm decisions. Unsure what's a good option for you? Get in touch with your local Citizens Advice representative.
Great! So, how do property repossessions differ thanks to COVID 19?
Since April, when the UK economy become temporarily paralysed by lockdown and GDP fell by 20.4% (The Office of National Statistics), The Financial Conduct Authority has put its foot down.
In response to the COVID outbreak, it’s ordered mortgage lenders to give borrowers more breathing room and take into consideration the current circumstances if they fail to make payment.
As a consequence, property repossessions are now suspended across the UK until October 31st 2020! Mortgage holidays can also be extended up to the same deadline.
Lenders began issuing mortgage holidays back in March to allow those who can’t afford their mortgage, residential or buy-to-let, to defer or reduce their payments during the epidemic.
In excess of 1.86 million home owners (1 in 6 households with a mortgage) took the initial three month holiday – lenders are expecting this number to rise over the coming months as more borrowers enter financial difficulty. But will this see a spike in property repossessions? Only time will tell.
So, how do I apply for a COVID 19 mortgage payment holiday?
To apply for a mortgage payment holiday is actually pretty simple. All you have to do is contact your lender and let them know that you’re in financial difficulty. They shouldn’t need much information from you.
From here, they’ll fast track your request for approval and should be able to get back you pretty quickly. If accepted, you won't have any additional fees and the application won’t affect your credit file.
However, any missed payments up to this point most likely will. It’s also worth considering that doing so is practically signalling to your lender that you’re a high risk customer. Whether you’re comfortable with them knowing that going forward is up to you.
NOTE: Lenders can suggest that you begin repaying your payments over, or take out a new product if they feel it would be in your best interest. They also have the right to record that you’ve taken a mortgage holiday - something that could affect your eligibility for future lending.
So, is there another way to avoid property repossessions?
In the majority of cases, selling your house fast is one of the easiest methods to offset any arrears and avoid house repossessions, providing your property’s value covers your mortgage debt.
Not only will this method keep your lender happy, but it also prevents you dealing with property repossessions and preserves your existing credit score!
You see, unlike mortgage lenders, we’re not picky!
We’ll buy any property in any condition in any location. As a cash buyer of property, we can also get you exchanged and completed in record time – in as little as 7 days! And if that’s not enough, we’ll also cover all your legal fees and surveys, among other expenses.
To see how we can help you avoid property repossessions in record time, get in contact with our team today.