Landlord Products / Services
Man, this sucks royal donkey balls. I recently discovered a colleague of mine is currently on the brink of being repossessed, and it’s been a brutal watch for me personally. Alas, I know he’s not the only one going through the shit-storm.
As the Bank of England continues to increase interest rates to fight terrifying rates of inflation, a nationwide increase in house repossessions is always a likely symptom. In fact, it’s inevitable.
One thing I have learned through personal experience and by watching my friends’ situation unravel is that it’s easy to make a bad situation worse, so remaining rational – despite the unshakable feeling of hopelessness – is usually the best approach.
If you’re going through this horrendous situation, or if you fear you’re on the verge of doing so, I can only encourage you to educate yourself on the matter as much as possible so you can minimise the damage. Life as we know it isn’t over, so it’s important to put yourself in a situation which gives you the best opportunity to rebuild ASAP.
From the perspective of a non-financial advisor, I’ll do my best to walk through the steps and some options…
Table of contents
- When is a repossession notice served?
- What happens when a repossession notice is served?
- What happens after a property is repossessed?
- What happens after a repossessed property is sold?
- What happens if a sold repossessed property doesn’t cover the mortgage debt?
- Does being repossessed affect your credit rating?
- How to avoid repossession
- Selling your property quickly to avoid repossession
When is a repossession notice served?
When someone receives a repossession notice, it usually means:
- they’re behind on their mortgage and they have been in arrears for 90-180 days.
- A judge has granted a possession order (lenders cannot repossess a property without a judge’s permission).
What happens when a repossession notice is served?
Mortgage lenders are legally required to give at least 15 days’ written notice of a repossession order. The notice will specify the date of the repossession.
On the day of repossession, an appointed bailiff will take possession of the property by changing the locks and shutting off all the utilities.
What happens after a property is repossessed?
The lender will arrange for the property to be sold, usually on the open market via an estate agent.
A common misconception is that the lender will always put the property up for auction and accept the first low-ball offer. That isn’t really the case, because the lender has a duty of care to the borrower to ensure they achieve the best possible price for the property. it’s also in the lender’s own interest to do so, so they can recoup the outstanding debt (plus expenses) from the sale.
However, in some cases, the lender may decide to put it up for auction. But my point is, that isn’t always the way.
Speaking of expenses, the average cost of repossession is circa £17,000 – £20,000, so it’s not a cheap bill by any stretch (yes, as mentioned, you’ll also be liable for that).
What happens after a repossessed property is sold?
Once the property is sold the proceeds from the sale will be used to:
- First and foremost, cover all existing mortgage debt
- Clear any debt against the property
- Clear any debt incurred during the repossession
- Cover any fees associated to sell the property
- Lastly, if any money is leftover, it will be given to the borrower. However, it’s important to note that this is usually very unlikely, and the borrower usually ends up owing money after the sale to cover the fees.
What happens if a sold repossessed property doesn’t cover the mortgage debt?
This often occurs when a property is in negative equity. In other words, when the debt is worth more than the value of the property.
In this case, unfortunately, the borrower will not be able to escape liability even after the repossession.
If, for example, the property was sold for £100k, but there is a £120k loan on the property, the borrower will be held liable for the shortfall, plus expenses of the sale.
If it gets to this stage, it’s important to arrange a realistic repayment plan with the lender.
Does being repossessed affect your credit rating?
In short, yes.
A repossession will have a negative effect on your credit score, resulting in being thrown into the higher-risk bracket, meaning lenders will be less likely to lend you money in the foreseeable future.
Experian and Equifax, the two most popular credit reporting services used by mortgage lenders, state that they will keep a repossession on your credit history for 7 years.
The primary reason for why most people want to avoid repossession is because it remains on their credit history for almost a decade and that can be devastating to recover from.
How to avoid repossession
it’s entirely possible to not only prevent repossession altogether, but also stop it from happening mid-process.
Admittedly, the options are limited, and most of them are explored before getting to the stage of repossession, but they’re always worth mentioning:
- Talk to your lender and explain your situation and prove to them that you’re trying to deal with the problem.
- Extend the term of your mortgage so your monthly payments become less.
- Ask your lender if you can have a “mortgage holiday” (i.e. a temporary pause on your payments) until you’re in a better financial position.
- Look into remortgaging onto a different product with better rates.
- Sell your property quickly and downsize. Of course, this is easier said than done.
Selling your property quickly to avoid repossession
Admittedly, this is usually not an ideal option, but then again, this isn’t an ideal situation. Moreover, the options are very limited.
The problem is it’s tough to sell a property on the open market quick enough to avoid repossession. The average time it takes to sell a house is approx 12 weeks, and most lenders won’t agree to waiting that long on top of what they have already waited.
By all means, if you can sell your property quickly for the going rate, then that can be a sensible solution. But that’s a tall order that’s often unachievable.
One of the very few realistic ways of selling a property super quickly (within as little as 7 days) and avoiding repossession – and it’s an option I have blogged about before – is selling to a house Cash Buyer Company (also known as a We Buy Any House company). Many of them specialise in buying properties from borrowers that are on the verge of being repossessed. When I say “specialise in buying”, I really mean specialise in taking advantage of a very bleak situation. Sad, but true.
If you Google “how to avoid repossession“ your entire search result will be littered with cash buying companies itching to snap up your property and put you out of your misery.
Yes, these companies can buy your property fast for cash and ultimately stop you from being repossessed, and prevent your credit rating from being bulldozed, but the obvious pitfall is that you’ll have to accept an offer that’s anywhere between 75% – 85% of the market value. that’s understandably a bitter pill to swallow for many, and also makes it a non-starter. I totally get it!
I can’t tell you what is best for you, but I will say that many go down the “Cash buyer” route for one reason or another, and it works out well for them. Most notably because of the following reasons:
- They liaise with the lender directly and prevent the repossession;
- they can complete a sale within as little as 7 days;
- they cover all legal fees;
- they manage all paperwork and surveys;
- they help homeowners clear debts and generally resolve financial issues quickly.
… and that leads me nicely onto the next pitiful of going down this route – the “property cash buying” industry is shark infested, so it’s crucial to do your due diligence and use a reputable company. Many of the nefarious characters in the space will do their best to take full advantage of your dilemma.
If you’re interested in finding out more, particularly how to avoid the scumbags, I recommend reading my complete guide on Cash House Buyer Companies.
Personal recommendation…
If you want a quick personal recommendation, here you go (you can read my full in-depth review on MyHomeBuyers if you want to know why they’re currently my personal fav)…
| Service | Rating | Features | Offers (up to) | |
|---|---|---|---|---|
My Homebuyers | Rating TrustPilot Reviews | Features
| Offers (up to) 80-85%of Market Value | Get cash offer |
That said, I *always* encourage everyone to talk to more than one reputable company in order to get a few cash offers (there’s a list of reputable house buyer companies that will give you no obligation cash offers in my guide)!
I know I can’t fix your financial woes, but I hope I’ve managed to make the situation a little clearer so you at least know what to expect and what your options are.
Feel free to drop a comment!
I wish you the best of luck xoxo
Disclaimer: I'm just a landlord blogger; I'm 100% not qualified to give legal or financial advice. I'm a doofus. Any information I share is my unqualified opinion, and should never be construed as professional legal or financial advice. You should definitely get advice from a qualified professional for any legal or financial matters. For more information, please read my full disclaimer.
