Whether you're worried about the prospect of facing repossession or you're thinking about buying a repossessed property, we've got the low-down on what you need to know.
If you're worrying about repossession...
No matter where you live in the UK, if you don't keep up with the payments on a mortgage or other loan secured on your property, you are at risk of repossession. This has always been a risk, but for many people, it's more of a worry in the current economic climate as interest rates and the cost of living both rise.
Unfortunately, recent statistics suggest that these worries are not unfounded. According to figures published in the Independent, lenders are already seeing a spike in mortgage arrears. Even more worryingly, this appears to have translated into a 50% rise in the number of homes repossessed during the first quarter of 2023, when compared to the final quarter of 2022. If you want cold, hard numbers, around 750 UK homeowners had their properties repossessed during those first three months of 2023.
Buy-to-let landlords are also struggling. Repossessions among this group were up 28% in the first quarter of 2023.
Many of those whose properties have already been repossessed this year will have been on variable rate mortgages. With the Bank of England now having raised interest rates 12 times in succession, the pain this causes mortgage holders is obvious. In addition, concerns are growing that some mortgage holders with fixed rate deals may soon join the ranks of the repossessed. Currently, some fixed rate mortgage holders may have deals with interest rates as low as 1%, but remortgaging is likely to see their rate jump by 5%.
Set against these concerns, it's well worth taking some comfort from the fact that the increase in the number of repossessions is measured against a very low pre-existing base as the pandemic-hit courts have been struggling to work their way through a backlog.
What's more, although the number of borrowers in "early arrears" is growing, mortgage lenders are obviously aware of the increasing financial pressures and recently met with government representatives to discuss what help could be offered to those in difficulty. Although, to date, there's no formal government help (and no proposals for any), mortgage lenders themselves are becoming increasingly proactive. Some reports suggest that, over the last 12 months, UK mortgage lenders have provided "tailored forbearance" to help an estimated 200,000 borrowers in difficulty.
Much as the name suggests, "tailored forbearance" is a support package designed with an individual borrower's needs and financial means in mind. Available support might include:
- temporarily reduced payments
- a temporary payment holiday
- a temporary move to interest-only payments
The use of the word "temporary" might seem worrying, but there's no mandated maximum period of time.
Additionally, some lenders will look sympathetically at a borrower who wants to extend their mortgage term in order to reduce monthly payments. Clearly, this will result in an increased overall repayment sum (although so too, of course, will repayments over the original term at a higher interest rate), but it may be worth considering as a genuine alternative to a repossession. Not everyone will be eligible for a longer mortgage term, but even those hoping to extend beyond retirement age may be able to do so if they can demonstrate that they'll have adequate income to keep making repayments.
Alternatives to renegotiating your payments with your lender might include increasing your income. Obviously, this won't be possible for everyone, but for some, a new or even a second job, or renting out a room to a lodger could make the difference.
Ultimately, the advice for anyone worrying about the prospect of repossession is to face the problem head-on. This definitely means opening and reading every piece of post, email and text from the mortgage lender. It also means being realistic about current and likely future financial commitments and resources and, perhaps most importantly, being open and honest with the mortgage lender. No lender can offer support or help if they don't know that a borrower is beginning to struggle - and the range of available options are likely to be larger the earlier a borrower raises their concerns.
If you're thinking about buying a repossessed property...
Buying a repossessed property - and so indirectly profiting from someone else's misfortune - might sometimes seem faintly unsavoury. However, it is, of course, worth remembering that it's the sale and, more specifically, the proceeds of that sale, that will hopefully ease the previous owner's financial difficulties.
If you're comfortable with the idea of purchasing a repossessed property, you may be able to secure one for a lower figure than a comparable home being sold by the owner themselves, as repossessions tend to fetch lower sold property prices. Partly this may reflect the condition of the property: a repossession is likely to be in a worse state of repair and decoration than a home where the seller has not been struggling for money. Partly, too, it's a reflection of the fact that lenders selling repossessed homes may be satisfied with lower than average sold property prices. After all, their primary concern is to recoup the money they lent towards the purchase.
Although discounts of up to 30% in comparison with market value are not uncommon, you shouldn't assume that this will be the case. Even if you do have the prospect of buying at a discount, it's crucial to weigh up this discount against possible additional costs that you may face when you take ownership. As we have already mentioned, these may include making good (possibly unknown) defects in a property in poor repair. It could also include the cost of reconnecting utilities. Consequently, anyone contemplating buying a repossession must do their due diligence to ensure they have as much information as possible about the condition of the property.
Repossessions are frequently sold at auction as the process is faster than a sale by an estate agent. This benefits the lender, who wants to be reimbursed as quickly as possible, and perhaps also the erstwhile owner, who may want the whole situation resolved and behind them as soon as possible.
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