Repossession: How to avoid it

Estate agent signsThe number of people who lose their homes after falling behind on their mortgage payments is forecast to increase next year as unemployment rises.

The Council of Mortgage Lenders (CML) expects 45,000 repossessions to take place in 2012, up from an estimated 37,000 this year, despite the low interest rate environment.

If correct, this will push repossession numbers back up to nearly the same level as in 2009 - at the pinnacle of the housing crash.

Bob Pannell, chief economist at the CML, said: "With higher unemployment and a prospect of real incomes stabilising at best over the year, we should expect to see increased signs of financial stress."

But if you are struggling to keep up with payments to your mortgage lender, or even if you are already behind, you can reduce the chances of having your home repossessed by following the advice below.

1. Talk to your lender
As soon as you realise that you are going to have a problem making your payments, it is a good idea to speak to your lender to explain your situation.

After all, you may be able to negotiate temporary terms that will make the difference between keeping or losing your home.

Short-term solutions that could help you to get back on your feet include taking a temporary payment holiday, adding any arrears you have already built up to your loan amount - otherwise known as capitalising your arrears - and paying off your arrears in instalments.

2. Consider changing your mortgage
Extending your mortgage term will allow you to make your payments over a longer period of time, reducing the amount you have to pay each month to a more manageable level.

You can achieve the same effect by switching to an interest-only payment plan. Both courses of action have disadvantages, though.

Repaying the debt over a longer term, for example, will also increase the amount you have to repay in the long-run, while paying just the interest on your loan will mean that the amount you owe remains the same.

3. Take advantage of benefits
If it is a change in circumstances, such as redundancy, that has made it harder to keep up with your mortgage repayments, it is worth checking to find out if you qualify for any benefits designed to help people in this situation. You may, for example, be entitled to mortgage interest support.

Try to avoid using unsecured credit accessed via credit cards or personal loans to meet your mortgage payments though. Otherwise, you could end up even worse off than you are now.

4. Consider renting/selling your home
One way to avoid falling behind on your mortgage even when you cannot afford the repayments is to rent out your home and move into a cheaper rental property yourself.

You will need to discuss this with your lender to ensure that your loan agreement allows this, though.

Another less drastic option is to rent out a room to a paying lodger, whose rent can then be put towards the mortgage.

If you would prefer a more final solution, you could also put the property on the market and pay the debt off once it has been sold.

5. Get legal advice
If you are already at the stage where your lender has applied for the repossession of your home, it is vital to take legal advice well before you have to go to court as this will allow you to prepare for your case.

However distressing, it is also very important to turn up if your case does go to court – even if you think that your situation is hopeless, you may still be able to save your home.

To give yourself the best chance of leaving with a roof still over your head, you should arrive early and bring all the relevant documentation, including correspondence with your lender and details of your income, with you.
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