Repossession - am I at risk?

Wednesday 22nd October 2008

by Bob Bardsley
Know Your Money Editor

Perhaps one of the greatest fears at times of tightened financial affordability is the risk of losing your home. With other costs rising and house prices falling, the fear of finding mortgage repayments untenable - but still being unable to sell the property on - could be leaving Britons unable to sleep at night. So what really are the issues and what can be done by individuals, financial services providers and authorities to ensure that families are not forced on to the streets?

A last resort

Although it may seem like mortgage providers are breathing down your neck for those monthly repayments to be in on time, the government stresses that repossession is a last resort - and that those same lenders are actually the place to go should you need assistance. HM Treasury reports the approval of new court procedures towards pursuing repossession, which place lenders under certain obligations to their customers before they are able to attempt to take ownership of a home.

The Civil Justice Council's new protocol means financial services providers are obliged to discuss with their customers the potential alternatives to repossession and provide the courts with proof that such discussions took place. Chief secretary to the Treasury Yvette Cooper comments: "We need to make sure we help those who might be hardest hit in the tougher times ahead, ensuring repossession is the last resort - not the first."

What's the risk?

So just how many possession orders are being issued? The Ministry of Justice compiles figures on a quarterly basis for the number of orders approved by the courts. This is different from the actual number of repossessions which take place, as not all of the orders are ultimately carried out. In the three months to August 2008, however, 39,078 possession orders were issued in UK courts. The ministry asserts that this represents an increase of 17 per cent year on year - but is no significant shift on a quarterly basis.

But the actual number of repossessions taking place might actually have dropped as, with the same number of orders issued as in the first quarter of the year, the Ministry of Justice reported that a greater proportion were dropped over the same period. The one percentage point increase - from 47 to 48 per cent of orders being suspended - might seem negligible, but for those whose properties were saved it could seem more substantial.

Northern Rock

It seems Northern Rock is unable to avoid making negative headlines at the moment - and on repossessions its name crops up again. This time around, the lender has been criticised for an apparent increase in its pursuit of repossessions since being nationalised. Housing and homelessness charity Shelter explains that, at the end of June, Northern Rock's total number of properties in possession stood up by 68 per cent, at 3,710 compared with a 2007 year-end total of 2,215 unsold homes.

With the government's recent bail-outs giving it a 40 per cent share of the UK mortgage market, the charity is calling for authorities to extend greater protection to customers of nationalised banks to ensure they do not face an increased risk of repossession. Chief executive Adam Sampson comments: "We realise the government cannot avoid all repossessions, but it must ensure a dignified and planned exit from mortgages that are held by the newly nationalised banks."

Sale and rent back

During the tightened housing market, homeowners facing an affordability crisis might be tempted to turn to alternative ways of selling their home. One such option is sale and rent back - in which the owner escapes their mortgage repayments temporarily by selling their house to a property investor and subsequently paying them rent to remain living there. However, the Office of Fair Trading (OFT) has pointed out that this is not a regulated activity and is calling for the Financial Services Authority to be given jurisdiction over it.

Among the pitfalls identified in an OFT report is the likelihood that owners could misunderstand how long they are allowed to remain in the domicile. This might be guaranteed for only six to 12 months, whereas many consumers believe they are entering into a deal where they can stay resident for as long as they choose, the authority asserts. The study also found that some Britons were opting for sale and rent back schemes when alternative methods of refinancing their mortgage were available. Guidance from the OFT stresses that consumers can access free advice from independent organisations that could prove crucial in helping them to make the right decision about whether to sell through such a scheme. ADNFCR-8000200-ID-18839513-ADNFCR ©