Today I got a call from a frantic seller who is facing repossession – I’ll call him Mr. B. He owns a house in North London, but in a not so great area where prices have been steadily depressed for some time.

He told me that he has a ‘repossession order’ for next week. The first thing I try to do when someone calls in a panic to tell me about a court possession order on their home is to try an find out exactly which stage the reposession / possession is at. Many people confuse a Court Order for Possession with a Bailiffs Warrant for Possession. The two things are very different.

If you just got the first one, you have some time to sort out your finances and a very good chance to avoid repossession.

However, if you just received the Bailiffs Warrant, then look out. That’s the nasty one, and much harder to deal with simply because time is no longer on your side.

Mr B. told me that his was a bailiffs warrant for early next week. That in itself is not impossible to deal with by any means, but sometimes seller’s own expectations are simply too high.

Mr B. has a house worth £300,000 – his valuation of course, and as a homeowner like all of us, this will be the top valuation. He owes £200,000 to his mortgage lender, sub-prime specialist GMac.

He told me that he would like to sell to avoid the bailiffs coming next week. That’s a pretty tall order, to find someone who is willing to put down cash in today’s climate to buy a house in a couple of days. That would mean exchanging contracts at least and then submitting a form n244 to the court to get the bailiffs warrant suspended.

Unfortunately Mr B. also has arrears of a substantial sum of £22,000. This means that he would have to sell for a minimum of £222,000. Except that he also has a second charge loan with Black Horse Lloyds for £13,000. Once fees and penalties and costs are added to this Mr B. is looking at a minimum of £240,000 just to clear his debts.

Mr B told me that he understood that he time was against him and so he is willing to sell at a discount – but absolutely no less than £280,000.

This represents a discount against the value of the house (his valuation, mind) of approx 6.5%.

Now house prices are falling at a pretty fast rate. Lenders are telling surveyors to downvalue properties, but Mr B. not only wants someone to pay 93.5% of his price, but also wants to buyer to pay cash (no choice if they are going to exchange before the bailiffs arrive) which would almost certainly have to include the arrears of £22,000 as deposit if GMac are going to accept a conditional exchange.

I suggested to Mr B that any cash buyer will be looking at a serious discount in return for doing this in such a short time frame and any buyer is going have difficulty in remortgaging above £250k because of the stamp duty threshold.

There had already been a buyer and Mr B had used this to get the court to suspend the possesion order. Courts usually give a second chance, and the Judge did, but then the buyer pulled out.

Real Cash buyers are few and far between right now and they have the pick of hundreds of properties at fire sale prices. Even an estate agent trying to sell a home to an normal owner occupier will admit that 10-20% is the minimum discount from asking price if you really need to sell right now (and that sale would take at least 8 weeks via the normal process). If Mr B. thinks that he will find one of these normal homebuyers, with cash in hand and who doesn’t know there are bargains to be had, then he really is kidding himself.

When prices were rising, a rise in the valuation of a property of 10-20% over a 2 to 3 year period was considered by many to be a god given right. Now that values are slipping in the reverse direction many owners are clinging to the notion of ‘equity’ in their homes as their ‘money’ but that equity simply no longer exists.

I tried to get Mr B to be realistic and outlined the alternatives to him as I see them.

Reality No 1 : Find the money to pay off the arrears in a reasonable time frame and use an N244 form to apply to the Court for more time to pay GMac. Not definite but in the current climate a strong chance the Court would insist that GMac accept terms and the Court would suspend the bailiff’s warrant.

Reality No 2 : Sell the house to a cash buyer for what he owes and simply walk away from the problem with NO DEBT. Sure, he loses his home, but he keeps control of his future and his future income. With no equity in his house and huge arrears of £22,000 and mounting, what exactly is there to lose?

Reality No 3 : He waits until the last possible moment to decide on one of the options above and instead the bailiffs arrive, take control of his house and sell it at auction. GMac will sell it right now for whatever they can get (local comparisons on Auction sales sites show similar properties worth £285,000 selling at auction in the last 6 weeks for £152,000!). Mr B. may well think that is the end of the affair, but GMac won’t forget. Nor will Black Horse Loans.

Black Horse actually are quite good at turning secured charges into unsecured loans if they think they will get nothing at auction, but GMac were jsut involved in demanding repayment from Woolworth’s so they are unlikely to care about Mr B’s feelings when they use their legal right to pursue him for up to 12 years for the difference between what he owes them today and what they get for the house at auction.

Which option do you think Mr B will go for?

It’s a shame but my experience tells me it will be No 3. Instead of being honest to himself about his situation I feel he will remain in denial. After all, the whole repossession process actually takes months to get the position that he is now in. Really Mr B. is lucky. Tens of thousand’s of people are now in negative equity and don’t even have the luxury to be able to sell to anyone for enough to cover their debts and walk away debt free.

The moral of the story?

Act Now to stop your repossession!

Like any difficult situation it also helps to deal with it earlier than later. Stay in control of your own future, by either finding the funds to pay the arrears and settle with your lender in Court, or sell your home and pay off your debts. The alternative is too scary to think about.

Owen and Moira Martin are among the many British victims of companies offering controversial sale-and-rent-back deals. Their three-bedroom maisonette in Plymouth was repossessed last month because the company with which they had entered into an agreement never paid the mortgage, even though it had pocketed about £45,000 in fees from them.

Such horror stories have prompted the government to consult on how best to regulate the estimated 2,000 or so companies in the UK offering such schemes.

‘It’s been devastating,’ says Owen Martin, a supermarket worker, who has had to move into a privately rented two-bedroom flat with his wife. ‘We made sure the rent was paid, but we lost our home anyway because the company we sold to never paid the mortgage company.’

The Office of Fair Trading estimated in its recent report into the sector that some 50,000 sale-and-rent-back transactions had taken place. Operators offer to buy the property of someone facing repossession at a discount price, allowing the former mortgagee to remain in the property as a tenant. They usually also charge significant fees.

Read the full story at the Guardian website

http://www.guardian.co.uk/money/2008/nov/09/rent-back-evictions

The reality may be that a housing market depression may be caused by nothing more than the fact that we all start to believe that house prices will fall, we don’t put our houses on the market and we don’t try to move home.

This means that house prices will fall and those affected most will not be those who can ride out the storm and stay put in their homes, but those who are facing repossession.

This Is Money the website arm of the London Evening Standard have even published a price crash calculator so that if you aren’t scared enough already, you can truly frighten yourself into worrying about what your house will be worth if prices fall the same way they did in 1992!

The threat of negative equity however is now a very real one and millions of people will find it impossible to refinance their mortgages and will be forced onto their lenders’ top standard variable rates.

Back in 2007 a rough estimate would be that 70% of those people who contacted us by phone or email had some difficulties with their mortgage repayments, were in arrears but were also in a position to:

a) Repay the arrears over a given period either by direct agreement with their mortgage lenders or by a court judgement.

b) Remortgage with a new lender in order to get a fresh start with a new payment record appearing on their credit score

Fast forward and now it is rare that we are hearing from people who have enough extra monthly income to repay their arrears over time and many lenders (especially the sub prime) are refusing to accept repayment plans to pay off morgage arrears.

The majority of people contacting us are now also at the start of the negative equity trap.

The true and actual cost of their borrowings, (which consists not just of the amount borrowed but also the huge penalties, legal and court fees and Early Redemption Penalties), have risen dramatically, whilst the value of their homes is in many cases starting to stagnate, if not fall.

A homeowner who previously remortgaged their £200,000 home with a 90% mortgage (£180,000) and who has either added a secured loan (say £10,000 – new total £190,000) or had a County Court Judgement for unpaid credit card bills of a similar amount, and who has an early redemption penalty of say £7,000, may be mortgaged to £197,000.

One missed mortgage payment and not only can the interest rate rise dramatically so that monthly costs are hugely increased, but legal fees and punishing penalty fees will be also be added.

Suddenly we could be looking at redemption costs of over £200,000.

Sell the house?

Not always possible.

Estate agents will charge a minimum of 1%, more if you go with multiple agents. That’s at lease £2000. Legal fees and the Government’s ridiculous HIPs pack will add another £1500.

It’s now going to cost £3,500 to sell the home and get nothing in return.

But it doesn’t stop there.

If you remortgaged before the Northern Rock crisis hit in September 2007, then the chances are that your lender was giving signals to surveyors to over value properties.

The market is always rising so why not let them over value your home and then lend you more money in return for more profit?

By the time you may be in trouble house prices should have risen by enough to bring down your mortgage level to less than 100% – just in case they need to repossess.

But the reality is that homes are now only selling if the price is right.

Now it’s a buyer’s market again.

Houses which comfortably sold for £200,000 back in 2007 are now sticking in agent’s windows at £189,000.

Suddenly it could cost you as much as £10-20,000 to buy your way out of repossession.

But who is going to lend you the money to pay the costs?

It is not going to happen.

If you do have equity in your home then you do have options to avoid repossession find out here

Surely, that can’t be right?

Yet the Scottish newspaper the Sunday Herald Reports today the following:

“Prompted by concerns raised by Citizens Advice, Shelter and the Council of Mortgage Lenders, chancellor Alistair Darling announced last week that he has asked the Office of Fair Trading to investigate potential consumer detriment in the sale-and-leaseback market.

A spokeswoman for the Council of Mortgage Lenders said: “While we welcome the review, it is disappointing that no immediate action will be taken to regulate sale-and-leaseback schemes.

“Homeowners in difficulty may currently be considering selling their property through these schemes at a discounted value, without an independent valuation of their home, and with no real security of tenure.”

Whilst it is true that there are some rogue rent back traders out there (especially those offering to pay 100% of market value who in reality keep at least 40% back for many years), this Government is expert in knee jerk politics.

So many of the laws that have been passed since Labour came into power seem to be a reaction to scare stories in the tabloids.

The reality of the sell and rent back scenario is that it gives homeowners a last resort to keep their homes when all else has failed.

If the Government legislate against that last resort because a powerful lobby of middle class people feel that that they need to legislate against other people having the right to sell their homes for less than market value in order to stay in them, the outcome (like that of many of their policies) will be exactly the opposite.

CAB and Shelter may talk the talk but they won’t offer you a home when you are repossessed and evicted.

As for the CML (Council of Mortgage Lenders) – well who do you think supplies the financing and re-mortgaging for sell and rent back companies?

Is Alistair Darling (or any other of the wealthy Islington-ite Labour Government) going to provide you with a nice Council House or put you to the top of the housing list when you are repossessed?

I think we all know the answer to that one.

If you are thinking of selling and renting back make sure that you do the research and ask for references from other sellers when dealing with a rent back buyer.

If you truly are facing repossesion then borrowing your way out of trouble is the recipe for disaster.

This is because if you have mortgage arrears or a possession order against your home from your mortgage lender or a second charge loan company, no one is going to lend you money at a lower interest rate than you are currently paying. If they do, it will be for a limited time before massive interest rates kick in.

This means that you will almost certainly lose your home. If not today, then in the coming months as you struggle to make even higher payments.

Most of the loans available to people in your position are on  a variable interest rate. The Bank of England rate may go down, but these companies are not linked to the Bank of England interest rate, so you will probably find their rates going only one way – UP!

Any solution to stop repossession of your home MUST also help to get you out of debt, not further into debt.

For repossession solutions and help in reducing your liabilities with credit cards and other unsecured debts contact us via our website Stop Repossession Org UK

This means that for those who need to remortgage soon, not only are rising interest rates from sub prime lenders and falling or static house prices an issue, but they may now find that they are unable to remortgage to the full value to pay off their current mortgage with an existing lender.

If a property worth £100,000 was 100% mortgaged 2 years ago and has fallen in value even by a few percent, then this means that a new mortgage may only cover around £88,000 towards paying off the existing mortgage.

The result?

Many will be unable to remortgage, will fall into the dreaded negative equity not seen since the early 90s, and will be forced onto so-called standard interest rates with their current lender.

With some sub prime lenders this is 10% or more.

This news in from The Guardian online:

“Cheltenham & Gloucester will tell homebuyers today that they must put down a minimum deposit of 10% if they want one of its mortgages, as the clampdown on lending gathers pace. Meanwhile, Royal Bank of Scotland and NatWest are withdrawing from offering mortgages for more than 95% of a property’s value.

C&G – owned by Lloyds TSB – is one of the biggest mortgage providers to rein in its lending in response to the credit crunch. The change means that a typical first-time buyer in London will have to stump up almost £25,000 to obtain one of the company’s home loans.

RBS/NatWest has already pulled out of offering mortgages above 95% through brokers; after March 7 this will also apply to branch-based home loan applications.”

Read the full article here

Using the court form N244 you can request a fast hearing to present new evidence to the judge to either delay or cancel the order to repossess your home.

To help you with this process we have prepared an example to show you how to fill in the form and how to present it to the court.

Follow this link for advice on how to use County Court Form n244

These will be based on situations faced by people who have contacted us but of course, names and identifying information will remain hidden.

Case #1

Mrs. B
Location: Wakefield
Value of Home: approx ￡500,000
Total Mortgage: ￡108,000
Lender: Kensington
Second Charge: None
Loan Arrears: ￡24,000

Mrs B contacted us after receiving a Bailiff’s Warrant for Possession from her local county court on behalf of her lender, Kensington.

She had followed standard procedure to ask the court to allow her to pay her substantial arrears over 2 months. For this she used the Court Form N244. Because her court was busy the judge could only hear her case late on Friday morning, repossession by bailiffs was set to take place at 11am on Monday.

Normally, if a homeowner asks the court to help agree a repayment plan with their lender the judge will recommend that the lender accepts the plan and will suspend the repossession.

However, the judge can only suggest this to the lender.

In Mrs B’s case, the judge took on board the extenuating circumstances (serious illness in the family, coupled with a very low mortgage compared to property value and no other lenders involved) and urged the lender’s solicitors to ask them to accept the payment of ￡24,000 arrears over a 2 month period.

This is a large sum of money, but also a very short repayment period for the lender to agree to, and Mrs B was able to show that she could make these payments.

However, the lender refused the Judge’s recommendation and stated that only arrears payment in full before the bailiffs arrived on Monday would be acceptable. This was lunch time on Friday.

Unfortunately, Mrs B didn’t contact us until late afternoon on Friday.

If she had contacted us earlier we would have been able to arrange a cash buyer for her home with an option to buy it back later. Unfortunately, there was not enough time to even get ID documents to a solicitor before the repossesion was to take place on Monday morning.

To make matters worse, Mrs B had made a payment of ￡5,000 on the Friday morning, which instead of being money she and her family could use to find rented accommodation after the bailiffs repossessed her home, would only slightly reduce the overall amount owed to her lender, especially once the lender had added on its legal fees, penalties and costs of selling her home at auction, probably with a very low reserve just to cover their costs.

If you even think you might be facing a similar situation in the near future, seek advice now, because like Mrs B, you might believe that just paying arrears when you go to court will be enough to stop your lender from repossessing your home.

Increasingly, lenders are unwilling to accept arrears repayment arrangements because they fear that by not repossessing today and getting their money back, that your property may not be worth enough to cover your mortgage and loans if there is a property crash.

For more information on the repossession process visit our website Stop Repossessions Org

This is because they are created by belief.

If everyone believes there is going to be a recession then they act accordingly. We spend less ‘just in case’ and we put off important decisions like moving house and taking on a bigger mortgage ‘just in case’.

The irony is that there is still the same amount of money out there, it’s just that in a recession those with the money (like banks) decide to either hold onto to it (just in case) or charge higher interest to borrow it (just in case).

I remember clearly the last house prices crash in the late 80s and early 90s. No sooner had the 90s arrived and the recession looked like picking up, than we got a very grey and dull John Major telling us not to grumble, tighten our belts and so on.

The result?

Another immediate recession because everyone was depressed and reluctant to move their money around (from banks lending to you and I deciding whether to pay for a holiday).

The entrance of Blair in 1997 had a remarkable effect on that recession because suddenly we had a man who was upbeat and positive.

Nothing else changed, the politicians still lied to us, scandals still happened, the poor got poorer but suddenly there was an upbeat feeling everywhere and the cheap credit era was ushered in to fuel the spectacular growth in property prices and high street spending.

Now we have Brown, another miserable Prime Minister – at least Major wasn’t grumpy as well as dull.

So what’s changed? Nothing, really.

Brown was responsible for the Government finance policies behind Blair, now he has Alistair Darling following the Brown plan – yet recession is looming and house prices set to crash.

The media also play their part. Just how many editions of Trevor McDonald’s Tonight programme can they make telling us the housing market is booming and buy to let will replace your pension? Eventually, some bright spark has to make a feature on ‘where will it all end’?

The house prices crash has been predicted by doomwatchers for the last 7 years.

Even if it does need a correction, there is too much money invested in property in the UK (not to mention too few properties for the growing population) for it to fall far. And any fall will still be way above where it was 5 years ago.

Gordon Brown said no more ‘boom and bust’. Unfortunately for him he has stayed around just too long to be able to blame anyone else for what is after all a cycle of nature.

The reality is though, if there is a crash or correction or recession it will only be because we have all talked ourselves into it, after years of talking ourselves out of the last one.

According to statistics published today by BBC Radio 5, FIFTY PERCENT of all repossessions in 2008 involve sub prime lenders.

No surprise there then?

Except that sub prime mortgages only make up 6% of UK mortgage lending.

Among the other fifty percent the highest number of repossessions are being brought by high street lenders Britannia Building Society, Bradford & Bingley, and (no surprise here) Northern Rock, all of which have pursued an agressive mortgage lending policy in the last 5 years.

The Judge asked the lender’s solicitors to speak to their client (the lender) to be lenient and agree a repayment plan. The answer comes back - a resounding ‘No’. The lender will only accept full arrears paid or repossesssion.

When asked the question ‘Who is your lender?’ the answer in 99% of cases has been Kensington.

Kensington are well known on the online forums for their heavy handed tactics and the huge charges they add as soon as a borrower misses a payment.

This sudden rise in calls for help regarding Kensington repossessions seems to suggest that maybe Kensington are looking to get as much cash back from their borrowers as possible before house prices (and their asset values) tumble.

After all, when faced between paying high inter bank interest for their money or bringing in cash from troubled borrowers via repossessions (and charging them high fees for the privilege) which would they choose?

The fact is that if you must borrow from a sub prime lender then read the small print carefully and make sure you can stick to the monthly payments – the consequences of not doing so are ever more likely to result in your home being repossessed.

The programme will claim that 29% of households in Manchester are facing serious financial problems and possibly home repossession.

Fuelled by easy credit access in the last 10 years, many of those in trouble are under 30. They have grown into adulthood being able to constantly re-finance their credit card debts until at some point the only option may have appeared to be consolidating their loans and securing them against their homes.

Now the credit crunch has forced lenders to be ultra cautious as to who they lend to (or the less reputable to be able to charge ever more disproportionate interest rates) most of those with high Loan to Value mortgages (85% and above) also have secured debts that in some case can mean they are more than 110% mortgaged.

In this case even the sale of the property would not realise enough equity to repay all the loans.

Lenders are increasingly using the repossession process to recover their money, some of them on the basis that in the current financial climate the money is better off with them than being risked as a total loss if another of the homeowner’s creditor decided to repossess.

The programme can be seen 5th Feb 2008 at 10.35pm on ITV1

One of the questions we get asked most is ‘Is Sell and Rent Back and Option For Me’?

The answer really depends on a number of circumstances and every situation is different, but generally speaking sell and rent back options are not feasible for those whose properties are worth £300,000 or more.

We have seen a massive rise in those seeking help to stop repossession whose properties are valued at over £300k.

For sell and rent back options to work, the buyer must be able to charge a rent that covers the cost of financing their mortgage.

With interest rates currently at around 6% for Buy to Let mortgages, this means that for every £100,000 that the buyer needs to mortgage, he or she must pay £600 pcm in mortgage interest. For a property over £200,000 this already equates to a rental figure of over £1200pcm.

Even if you might be prepared to pay £1200pcm now (and it may seem attractive if you are currently paying a lot more in servicing your debts), but the problem is that market rents in most areas of the UK are nothing like that amount. The average UK 3 bed semi may be worth £200k on the open market, but rental averages are probably more like £650 pcm.

This means that market rents are out of sync with property values. No investor can afford to buy a property and rent it back to the previous owner unless the rent covers the cost of their buy to let mortgage. No lender will lend against a property for a buy to let mortgage unless it believes the rent will cover the cost of the buyer’s interest payments comfortably.

For most lenders this means 125% coverage. For example is the interest was £1000pcm, the market rent must be at least £1250pcm otherwise they will not lend against the property.

For those who are facing financial difficulties with properties over £300k the obvious option is to sell on the open market and realise the best price.

Sometimes it might be possible to enter into a sell and rent back option providing the seller has enough equity in the property to allow a sale at a much lower figure, with an option to buy it back at a discount at a later stage.

However, a recurring theme of many conversations with those facing home repossession has been ‘Should I deal with Company X who are offering me 100% of the value of my property?’

The answer is NO! It can only be no!

Sell and rent back schemes can sometimes offer an answer, but the companies who offer to pay 100% of the market value for your home are hiding something very important.

The reality is that you will sell your home for as little as 50-60% of it’s value and be left homeless, if not sooner, then certainly later.

How come? Surely if they pay 100% that’s what I’ll get?

Again the answer is NO!

These companies will pay you at the point of sale 50-60% of the value of your property. Very often this is just whatever it takes to pay off your mortgage redemption figure.

They will promise that you will receive the remaining 40-50% in 5 years’ time (one company we heard of was quoting 10 years) PROVIDED that you remain renting for that whole period.

‘Fine’, we hear sellers say, ‘we want to sell and rent back for years.’

Only there is a HUGE catch.

Anyone who thinks that these property buyers will ever pay them the remaining 40-50% is dreaming.

Legally, all the landlord has to do is terminate your tenancy agreement (or put up the rent to a point that you can’t afford to pay and stay) BEFORE the 5 or 10 years is up, and then you will no longer qualify for the final payment.

The result? You have sold your property for very little today on a promise of more tomorrow, and that ‘more’ will never materialise.

So what is the alternative?

If you are considering a sell and rent back option you need to evaluate what you are being paid today for your home.

• Does it cover your mortgage?
• Does it leave you with any cash left over?
• Is the rent affordable?

The only guaranteed thing when you sell your home to rent it back is the price you are paid today.

Avoid any scheme that promises to pay you more in the future!

Following a previous posting of this story we were contacted by John Harley, one of the moderators of Consumer Credit Support who told us that the forum knew of other people who were having problems with Welcome Finance and that they were being represented by a lawyer from Stephensons in Manchester, a well known firm of solicitors specialising in this kind of litigation.

Mr Harley kindly offered to forward the details of our client Ms L to Stephensons to see if they would be able to represent her against Welcome Finance.

Ms L spent nearly a year of requesting, cajoling and pleading with Welcome Finance to provide copies of spurious loan agreements (against which Welcome had put a charge on Ms L’s property and which they had already admitted a number of times by phone that they did not have in their possession)

She also followed the Land Registry’s procedure for applying for a Unilateral Notice to be proven by the beneficiary (Welcome) or removed (a process that resulted in the Land Registry refusing to remove the charge even though no evidence had been supplied by Welcome to support the terms of their charge on the property).

The Land Registry told Ms L that she must pursue her own legal action against Welcome Finance.

Remember this is woman facing repossession, with a charge on her property of which she was not informed and for which there was no reason, or evidence of any loan or debt to the lender.

It was ultimately only the threat of legal action and the involvement of Stephensons that finally made Welcome apologise and then request that the LR remove the notice from the register.

This news was received by Ms L by phone the day before Christmas Eve and means that she can finally stay in her home and not be repossessed due to the spurious claims of a lender with whom she had never had an agreement.

Thanks are due to Mr Harley for suggesting Stephensons get involved. 

Former ITN Business and Finance correspondent Ed Mitchell who once interviewed Margaret Thatcher and Tony Blair as well as business leaders like Donald Trump, lost his job and home and now sleeps rough in Hove, near Brighton.

“There is an irony that someone who should be an expert as a business and finance reporter should get their finances in such a state,” he said, talking over a pint of Foster’s in a Brighton pub. “I was incredibly nervous sleeping out for the first time. It was behind some bushes in a walled garden just 400 yards from what had been my home in Portslade. You sleep like a feral beast when you are homeless and hear every movement. I feel vulnerable. You know that one day someone might roll you over and kick you.”

You can read the full article here and another long piece in the Evening Standard online

Banks ‘prey on customers in debt’

Some people are agreeing to make payments they cannot afford
Banks are being accused of pressurising customers who have financial problems to take out expensive loans to try to ease their debts, the BBC has learned.

Some banks are repeatedly telephoning customers to try to get them to take out costly loans, against the advice of debt charities.

Citizens Advice said it has received many complaints about the increasingly aggressive tactics being used.

Banks say interest rate charges are up to them.

Continually telephoned

People find that even after they have been dealing with us they have found that they have been continued to be written to. They get aggressive letters and phone calls from their lenders
Peter Tutton, Citizens Advice

The BBC’s Breakfast programme has discovered some customers who have an agreed debt repayment plan with a debt advice charity are being put under pressure to take out loans, sometimes at a higher interest rate than they are already paying.

One HSBC customer, Simon Chandler, said that even though he had declined the bank’s offer of a “managed loan”, they had continually telephoned him to try and make him change his mind

The interest rate on the managed loan is 13% – double what he is paying at the moment.

He said: “I have had multiple letters from HSBC saying they want to help people in financial difficulty – when clearly they don’t.

For the rest of this story click here

Whilst both of these statements are undoubtedly true, and we have accused lenders of such practices on this very blog, the Citizens Advice Bureau also plays its part in homeowners being repossessed.

How so?

Well in a number of cases that have come to our attention, including ones we have been involved in, the CAB has advised homeowners facing repossession that they must surrender to their fate and let the bank take their home, rather than pursue alternatives such as a cash property sale or that bete noir of NGOs and the press, the sell and rent back.

Our fictional Mr & Mrs Smith have 4 months’ mortgage arrears, a court possession order, and bailiffs due to evict them in 10 days. Where to turn?

The Citizens Advice Bureau promotes itself as the place to go for impartial debt related advice. Mr Smith mentions that they are thinking about selling and renting back.

The CAB advisor warns them against this. They will be losing money. Their home is worth at least 20% more than the Smiths have been offered.

The Smiths are relieved to benefit from the wisdom of the CAB.

However, the logic of this advice is somewhat strange.

If a homeowner allows a lender to repossess they immediately lose all control over the sale price of the home, whereas with a cash property buyer, the owner is free to decide whether or not to sell at a discount in order to pay off his/her debts, once the property is in the hands of the lender the property will be sold (usually at auction) to cover only the mortgage debt of the first charge.

Most repossessions involve second and third charges for secured loans. These high interest rate sub prime lenders are not going to shrug and walk away.

The will chase their debts aggressively for up to 12 years.

Of course selling your home for a discount is not something to be happy about. But what are the real options? Homelessness and another 12 years of being pursued by your lender with interest and charges racking up?

With so many properties now being repossessed prices for repossessions at auction are once more becoming bargains. However, if the lender sells the property below the mortgage debt redemption figure, then the lender can pursue the previous owner for the balance of the debt.

If you compare this with the owner selling for a price to cover their debts and recover at least some of the equity in their home then the CAB’s blanket condemnation of cash property buyers makes little common sense.

We have come across a number of people who have taken the CAB advice to allow themselves to be repossessed rather than accept a cash offer. Once repossessed, the person taking the advice is then not only homeless (and depending on their situation) with little chance of the local council rehousing them, but without any funds with which to rent in the open market.

Selling to cash buyers and sell to rent schemes may not be the answer to everyone facing repossession, but the attitude of the CAB seems to be a very middle class and patronising hair shirt ‘you’ve made your financial bed now lie in it a while’ coupled with sheer horror that a third party might make money out of somebody’s repossession situation.

Well, the banks, especially the sub prime lenders are making a lot of money out of repossessions with massive fees and penalties, the victims are ending up homeless when the options of selling at a discount and moving on or renting back their homes and getting their lives back together are simply not open for discussion by CAB advisors.

But at least the staff at the CAB can sleep well knowing that no property investors have made a penny from our Mr & Mrs Smith (who tonight may be sleeping in a council run B&B on the wrong side of town…)

This is further bad news for those facing repossession.

Not only are the rises in inter bank lending interest rates causing problems for those on sub prime mortgages and those trying to remortgage, but the drop in house prices and fall in sales also means that for many homeowners the equity left in their homes is shrinking for the first time in many years, and heading towards the dreaded negative equity last seen in the lat 1980s.

Negative equity can occur when the amount of money mortgaged against the property is greater than the value of the property.

For those on an 85% mortgage it means that house prices need to fall 15% to allow that to happen.

But for the tens of thousands on 95% mortgages, it means that if your house was worth £200,000 and your mortgage was £190,000, it only takes a relatively tiny fall of £10,000 in the market value to put you in the negative equity bracket.

If you then face problems paying your monthly mortgage you will literally have run out of equity to remortgage.

For those on 100% mortgages acquired in the last 12 months ANY fall in prices can mean instant negative equity.

Married with 2 children, the daughter’s husband had not only moved out of their home but had also stopped paying their mortgage payments for over three months, which triggered the inevitable repossession threat and legal letters from their mortgage lender.

The daughter, “J”, was extremely concerned because she believed that her husband had the right to sell the property to a cash property buyer without her consent.

Of course, where the house title on the Land Registry and the mortgage are both in joint names, both sides need to agree to a sale before it can take place.

This does bring its own problems as fighting over the matrimonial home can be as bad as the fight over the custody of children.

We advised J to inform her lender of the situation, and that she wished to remain in the home with her children, and to ask the court to make a judgement to allow her to stay in the home and to force the husband to contribute to the mortgage payments.

Unfortunately, this is just one more area where although the law does provide for these conditions, the time scale or funds available to take legal action can be out of step with the lender’s actions to repossess the house. It’s important in these situations to document all your actions and attempts to sort out the problem so if it does end up in court, you can show that you have made a serious attempt to reach a resolution.

In all cases you should take legal advice and basic advice for divorce and the home can also be found on the UK Shelter website.

If you are facing similar circumstances then please feel free to contact us directly

“Many experts are predicting that the housing market will slow
Home loans became even more expensive to re-pay in October because of higher interest rates and rising house prices, the Council of Mortgage Lenders said.

The CML said that interest repayments swallowed up 20.6% of first-time buyers’ monthly incomes.

That was up from 20.4% in September and the highest level since 1991.

Meanwhile, Conservative leader David Cameron will ask banks to do more to help householders avoid repossession when their fixed rate mortgages end.

Mr Cameron wants the industry to take a more sympathetic attitudes to borrowers who get into arrears, and to plan now to deal with an expected flood of home owners who might be facing repossession.  “

Let’s hope that the banks take some notice of Mr Cameron.

Prime lenders like Halifax have already passed it on to their customers, but for those customers of sub prime lenders like Capstone, GE Money, Kensington, and the like, the results are unlikely to be so fast, and in some cases, not be a result at all.

This is because many sub prime lenders are now actually bad risks themselves on the inter bank money markets where the interest rate is not set by the Bank of England and therefore reductions count little.

The irony is that the biggest repossessers are now themselves considered to have bad credit ratings. Poetic justice it may be, but they still have the power to charge some incredibly high rates and penalties which should see them in business for a long time to come.

The FSA told UK mortgage lenders this week to expect a massive rise in repossessions and defaults on payments.

In a twist whose irony will not be lost of the tens of thousands of UK victims of home repossession, many lenders are now in trouble and unable to refinance their debts, in the same way that many of their customers have been refused remortgage finance to service theirs.

Of course, the difference is that the individual homeowner facing repossession loses their home, whereas the banks facing similar situations get bailed out by public money, including taxes paid by the very homeowners who were repossessed.

It shows the old adage to be true that if you owe £5000 it’s your problem, if you owe £50 million it’s the bank’s problem.

Or in this case the Government’s.

These notices can be registered by anyone prepared to the pay the LR fee, and all they need to do is state a ‘reason’.

No actual proof of claim is needed!

The property owner then has the burden of applying to the register to have the spurious claim removed.

The Land Registry’s own guidelines state that if the beneficiary does not respond within 15 days showing proof of validity of the claim relating to the unilateral notice, then they will automatically remove it.

Sounds fair? Yes. Until you actually go through that process, as we have just done with our client Ms L.

In her case Welcome Finance provided nothing more than an email almost at close of play on the 15th day. An email (Ms L was told that she could not supply evidence by email) that merely stated that they ‘objected’ to the removal.

No proof.

No copies of signed loan agreements to back it up.

Welcome Finance have already broken the statute on the Consumer Credit Act by not providing Ms L with true copies of all original loan agreements, and within the next few days will be in criminal breach if they do not provide these.

The truth seems to be that if Welcome Finance actually had these proofs they would have supplied them to back up their claim of almost £20,000 that they are claiming the unilateral charge refers to.

The guidelines are quite clear.

In the absence of proof the Land Registry should automatically remove the charge.

The reality is quite different.

In keeping with the mentality of other agencies of this Government, the LR have refused to get involved and suggests that Ms L seeks removal of the charge by taking legal action in court.

This is a woman on relatively low income, who lives alone, who is facing imminent repossession because of the actions of a lender who cannot prove any debts are actually owed and now the Land Registry have acted as a partner in the inevitable repossession.

Even the lenders who are seeking repossession from Ms L are appalled that the LR have not removed the charge that Welcome cannot prove.

Admittedly this may be sour grapes on their part if the LR have acted differently against their own unilateral notices but it does go to show the LR have acted appallingly.

There is of course a system of redress via one Jodi Berg, the Independent Complaints Reviewer that covers the LR activity, but by the time anything is decided, Ms L will be homeless, Welcome Finance will have pocketed the £20,000 that they have no legal or moral right to, and this will be the fault of the Land Registry.

For more background on this case read here

If you are facing repossession and need our help free of charge, please contact us here