Property repossession always has been, and continues to be, a taboo subject amongst home owners and lenders alike. It’s not an ideal situation for either party to be in, and for the person who’s property is being repossessed, it can be an incredibly emotionally turbulent and distressing process.
There isn’t much more that’s frightening than losing your home. Your home is supposed to be your safe place, and your sanctuary, but unfortunately if you end up in mortgage arrears without sufficient reasoning or taking a mortgage holiday, it’s a very real possibility.
Debt is a more common issue than you may even think. In the UK, it’s estimated that after Christmas – the most consumer – heavy holiday of the year – as many as 1.6 million Brits will find themselves in some sort of debt. This is usually credit card, and many of them then struggle to go on and pay their bills following this. If your mortgage is included in the funds you’re struggling to muster, then, again, this could mean that you’re in trouble.
One of the biggest worries that derives from property possession – aside from the obvious loss of your home – is whether or not you’ll get any sort of financial gain back. Do you get your money back, or do you simply lose it all? If that’s the case, then what on earth comes next?
One thing that’s worth noting, is that if you’re in other forms of debt, they don’t necessarily just “go away” once your home has been repossessed.
Today, we’re going to be attempting to clear up whether or not you’re likely to get any money back once your property has repossessed, so if this interests or concerns you, read on to find out more!
Things to Remember
Before delving right into the thick of the subject, there are a few important things that you should remember about property repossession and its’ overall process.
- If you’ve secured a loan or a mortgage on your home, and you’re in arrears for either one of them, then regardless of who your lender is, they have the rights by UK law to apply to the courts in order to repossess your home.
- If your home is repossessed, then the proceeds of the sale of your home will first be used in order to pay off each of these secured loans.
- Depending on how much of the mortgage is left unpaid, any of this left over money will then go to the lenders,
- Following this, the money will go towards your legal fees, repossession costs and court fees.
- Only then will the remaining money be paid to you.
How Does Property Repossession Actually Work?
It’s important that we’re all on the same page in understanding how the repossession of property actually works before we continue.
- Understanding how the property repossession process actually works is important, because it will help you to understand why there’s a possibility you won’t get your money back following the repossession of your home.
- This can actually be the case, regardless of whether you have equity on your home or not.
- If you’re already in negative equity, then it’s likely you already understand that you won’t et any money from your property should it be repossessed.
Your home is not necessarily yours just because you have a mortgage secured on it.
The fact of the matter is, securing a mortgage on a property in the UK actually means that your home is, in fact, technically owned by the mortgage company.
When you sign for a mortgage, you’re really signing to say that the mortgage lender has a right over your property.
This very simply means that if you do not make your mortgage payments, they can repossess your home.
The act of one missed payment will actually put you into arrears with your mortgage lender.
When giving advice on the matter, an FCA document quotes:
“Your home may be repossessed if you do not keep up with the repayments on your mortgage.”
This if a fancy way of saying, very simply: if you do not pay your monthly mortgage bills, we can repossess your property. In fact, we would say it’s actually a warning that you must keep paying your mortgage.
Once the contracts are signed, sealed and the money is drawn, it can be exceedingly difficult to get out of a mortgage deal.
What Will Happen if I Miss a Mortgage Payment?
So, we mentioned above that missing one single mortgage payment will ultimately put you in some form of arrears. But what will actually happen once you miss a mortgage payment?
In many ways, the missing of a first mortgage payment can be likened to a ticking time bomb. The end result if ignored? Usually, repossession.
- For each independent mortgage payment that you miss, you get closer to being repossessed. It might sound dramatic, but it’s true.
- If you fail to act quickly, and to respond to and communicate with your mortgage lender when they write to you, then the time bomb simply ticks more quickly towards a repossession order.
There is, however, a process that all mortgage lenders have to follow in these circumstances.
- They must follow a strict procedure before they can actually legally repossess your home.
- Part of this process will involve them applying for a repossession order from the court.
- If you are then unable to offer a viable solution to the court, or if you make an offer and the judge dismisses it, judgement will be made to the lender for a repossession order.
- By this point, it’s only a matter of time before you will be instructed to leave your home.
What Will Happen After my House has Been Repossessed?
So, that’s a basic outline of how property repossession comes around, and the guidelines that mortgage lenders have to follow before going forwards with an order.
But what will happen after your property is repossessed? After all, we’re here today to talk about whether it’s possible you’ll get money back following the order being implicated.
Well, following the repossession itself, your mortgage lender will sit down and review the numbers, or “do the maths”, if you like.
- They will assess how much the property has netted in total once it has actually been sold.
- They will then figure out what the total amount left outstanding on the mortgage is.
- This above figure will also include all arrears and penalties.
- Then, the mortgage company themselves will add up all of the legal expenses that they’ve had to pay out applying to court, as well as their legal fees.
- If there is any balance remaining following this, it will be paid directly to you.
- If the total amount of all of the above sums results in you actually owing money to the mortgage company, then they are well within their rights to come after you for this money.
- This is the point in which they can choose whether to “bankrupt” you in the overall process.
- This could ultimately result in you losing other assets that you may own.
Of course, this is, without doubt, a worst case scenario – but it does happen! This is why it’s so important to respond to and communicate with your lender at the first arrear, and first point of contact. The longer you leave the situation unattended to, the worse it gets.
As we said, a ticking time bomb.
If my House is Repossessed, Will I Get any Money Back at all?
You may have read all of that and still be wondering whether you’ll get any money back at all once your home has been repossessed.
The answer differs, to be honest, depending on personal circumstance – as we mentioned above. It’s all about how much you owe on your mortgage, whether you have negative equity, and the total cost of legal fees, court orders and so on.
Even when you think you have equity on your house, however, there is a possibility that you will not get any money back should your property be repossessed.
Below, are the two main reasons why you may not get any money back on your property if it’s repossessed, regardless of your equity situation.
Your Lender has Sold the Repossessed Property at Below the Market Value
Unfortunately, it is quite often the case that repossessed property becomes difficult to sell, unless it is marketed at below the typical market value.
- This is actually the number one reason why you may not get any money back on your property after it is repossessed, even if you expected to.
- Remember this: lenders are not in the property selling business.
- This means that they are not remotely interested – or experienced in that matter – in selling property for the best possible value depending on the current market.
- All they’re really interested in, is selling your property, and getting their money back, as quickly as they possibly can.
- Unfortunately for the homeowner in question, a quick sale will usually mean for a price below the market value.
- Typically speaking, the average repossessed house will sell for as little as 25% below the market.
A typical example of a repossessed property selling for below the market value goes as following:
- The house in question, on the open market, would be worth the value of £235,000.
- Your mortgage outstanding is £176,000. This includes arrears.
- This leaves you with an equity of £58,750.
- Now, let’s say that your mortgage lender goes on to sell the property in question, quickly, for 25% below the market value.
- The property would then sell for £176,250.
- Of course, then you have to consider the selling fees. We’ll put this at £2,500.
- So, after taxes, the total the mortgage company will receive for the sale of your property will be £173,750.
- This is less than you owed on the mortgage by £2,250.
This remaining sum will usually be used to pay off additional costs.
What are these additional costs? Read on to find out more.
Court Fees and Legal Costs
The additional costs you must consider in the overall pricing, is the court fees and legal costs for the overall repossession process.
- Remember, your mortgage lender will have to spend this money in the first place in order to go forwards with court proceedings.
- These fees are not usually cheap, and will typically exceed the sum of £1,000.
- So, the left over amount above of £2,250 will therefore be increased by the court and legal fees left over.
This means that even when you have equity on your home, it’s unlikely that you’ll be getting any money back.
However, if your property is in negative equity – or instead, has very little equity on it – then there’s a zero percent chance that you’ll get any of your money back, we’re sorry to say.
However, you shouldn’t give up hope! There is, in fact, a solution to the problem that will help you more than you’d expect.
Always Seek Help from a Professional in the Industry
We can’t promise that you’ll be able to stop every single repossession order in its’ tracks, but there are some viable solutions which could help to ease your circumstances and make the overall situation easier.
- No matter how far down the repossession process you are – of course, unless it’s already been done – there is a solution!
- If you can manage to avoid having your property repossessed, then we would absolutely recommend doing so. You’ll prevent the emotional and financial difficulties of being evicted, and will be able to prevent your future credit score from being damaged.
- In fact, the moment you miss a singular mortgage payment, your credit score is affected, so the sooner you act, the better.
As soon as you miss a mortgage payment – or know in advance that you are going to have to – you should be certain to contact your mortgage lender. The sooner you do this the better.
If you still continue to be unable to pay, and you’re unable to come to a deal with a mortgage lender, you should check to see if you are entitled to any form of legal aid. This could seriously help you when it comes to court proceedings and so on.
Furthermore, there are many charitable advice services. Some of these include:
- The Civil Legal Service.
- Citizens Advice and the National Debt Line.
- Shelter can also offer you free help and advice.
- If you want to contact a local helper, then you should look to get in touch with your local council. Should you be past the stage of being able to stop the repossession, they may be able to help you through the rehoming process, and aid you in getting back on your feet.
Finally, missed payments can happen to anyone, for a multitude of reasons. It’s nothing to be ashamed of.
In fact, the worst thing you can do is hide, stick your head in the sand, and simply hope that all of the issues will go away. They won’t. The longer you leave them, the worse they will get, and the more likely you will be to end up having your home repossessed and full.
Always explore your options. Even when things seem hopeless, there is always help available – even if you’re struggling following the repossession taking place.
We hope we have helped you to better understand the financial circumstances following property repossession, and how you can get help in this, should you need it.
Thanks for reading.