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Repossession rescue

Find out how repossession finance could safeguard your home

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By Pete Mugleston   Mortgage Advisor

Last updated: 13th January 2019

“Can I refinance to avoid repossession?

For homeowners who are currently behind (in arrears) on repayments and facing repossession, there may well be lenders to consider a refinance application, depending on several key criteria, and this could be the best way to avoid house repossession.

The criteria includes…

  • How much you owe / how many months you are in arrears
  • How much equity you have in the property
  • If you have any other debt with payments late, missed, in arrangement, or in default
  • The reason for the arrears and your current situation
  • Is your income stable and will the new repayments be affordable
  • Is the property suitable security

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It’s important to remember that every lender is different in what they do and don’t accept, so if you have been turned down by your own bank, or been declined elsewhere, it doesn’t mean there aren’t any other options.

Finance to rescue someone from repossession typically (not always) entails a short-term arrangement by way of a full remortgage or second mortgage (or bridging loan), that is used to free up equity to repay arrears and others debt. This is then commonly refinanced months down the line, once the credit file has recovered enough for the borrower to be eligible on better terms elsewhere.

To establish if you’re eligible, make an enquiry and we’ll refer you on to one of the specialists.

How much you owe / how many months you are in arrears

Applicants that are one month behind are of course in a much better position than those in 6+ months of arrears, and as a result are likely to have a higher number of available lenders to choose from. Being further behind on payments makes you more of a risk to new lenders, which limits your options and usually requires more equity (a lower loan to value ratio, LTV), and comes with higher fees and rates of interest.

How much equity you have in the property

Most UK lenders considering a ‘repossession rescue’ mortgage would require a decent amount of equity in the property, A) so they can release funds to pay off outstanding debts, and B) as security over the top of what is borrowed to protect them against the risk of default.

Clean credit borrowers with no arrears can potentially borrow up to 95% loan to value (LTV), but those with mortgage arrears are likely to be limited to far lower LTV, depending on the number of months arrears and the rest of the credit profile. It stands to reason that  borrowers with more equity, say 50%, are a lower risk than borrowers looking for 80%.

NOTE: Non-equity loans can potentially be lent up to and over 120% loan to value (LTV), but these are at extremely high rates and should only really be considered as short-term, last resort borrowing.

If you have any other debt with payments late, missed, in arrangement, or in default

It’s common for those with mortgage arrears to also have other debt that has fallen behind, because many treat the roof over their heads with upmost importance, and the mortgage is often the last thing people stop paying in a time of financial difficulty.

With this in mind, if a borrower is looking to refinance to clear up mortgage arrears then there is usually more money required to clear other debts. The state of the overall credit report and payment conduct of other accounts will also be taken into account in the lending assessment.

Multiple accounts (cards, loans etc) in arrears or in default can make refinancing even more difficult as the new lenders will need to see evidence that offering a new mortgage is responsible on their part.

The reason for the arrears and your current situation

That said, if there is a plausible and understandable explanation for the situation, then the new lenders may be able to take exception and offer finance that may typically be outside of policy.

If a major life event caused prolonged time off work, increased outgoings, or reduced income, which then lead to payments falling behind, was a one off event that has since been or is soon to be overcome financially, then lenders may be more flexible and understanding than for those borrowers who simply overspent with a disregard to financial management.

An example of this may be a single person who suffered an illness and was unable to work but is now back on their feet; or perhaps a couple with a joint mortgage where both incomes are required, and one of them was made redundant for several months but now has a new job.

Lenders are looking for ideally being one event, that is now remedied. If there is sufficient income to support a refinance then these lenders can consider a tidy up of all outstanding debt, to consolidate into one loan secured on the property as a second mortgage, potentially also stretching the term to reduce monthly payments where appropriate.

Is your income stable and will the new repayments be affordable

A huge part of the assessment a new lender undertakes is the applicant’s income and ability to afford the repayments. If the credit issues were down to redundancy, is the applicant now in a stable job? What are the long term prospects of the role and likelihood of a repeat occurrence? If the issues were down to illness, has the borrower now made a full recovery and back at work full time?

Assuming the income is reliable, lenders will each run their own affordability assessment based on their interpretation of the acceptable usable income (some lenders don’t accept bonus or allowances, others accept 100% of them, for example).

Most lenders run an affordability based model and this can result in maximum loans of 3-5x income, although there are currently (at time of writing) a handful of lenders considering up to 6x income in certain circumstances.

Is the property suitable security

Property type is a factor for all borrowers, where lenders will each have different policy on what they deem suitable. Traditional brick built property is generally accepted by all lenders so long as it is habitable and structurally sound.

If the property is in need of repair or is of non-standard construction (i.e. concrete build, timber frame etc) then the number of lenders willing to consider an application can be limited.

How to avoid repossession of your home if you are behind on your mortgage

Many of our customers want to know how to avoid a house repossession, and there are number of steps you could take to safeguard your property in troubled times…

Have you approached your lender? Many borrowers have access to additional facilities within their mortgage they aren’t aware of, such as payment holidays (option to take several months off from paying the mortgage), draw-down of over-payments, or an arrangement to extend the mortgage term  to lower repayments, which can be invaluable in times of financial difficulty.

Furthermore, it’s in a lenders interest to do all they can to avoid repossessing a property and should try to accommodate with a degree of flexibility.If you need to borrow more cash to clear off arrears and would also benefit from additional equity to consolidate debt, then this could be achieved as per the process above.If you have tried all options and still can’t get into a position where you’re able to make payments, and have been declined new finance, then it may be time to think about selling the property – this would be recommended above handing the keys back and going through formal repossession processes, as you have a bit more control over who you sell the property to, and for how much.

It should also give you time to arrange a rental property to move into.
Technically if you haven’t yet defaulted on the mortgage then it isn’t a repossession, but if you have defaulted it would be viewed as a repossession by new lenders in future, even if you sell the property privately.

Speak to a repossession rescue expert

For more advice about how to save your house from repossession call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

One of the experts we work with will discuss all of the available options and they may be able to connect you with a lender offering a ‘rescue’ mortgage that could help you avoid repossession today. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 13th January 2019
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information.

The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA.

Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

 

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