Avoiding repossession

As any homeowner knows repossession is an ugly word, but is also one that has been rearing its head more and more over recent months. This is where the bank, building society, or lender takes back your property because you have failed to keep up with repayments on your mortgage, and with interest rates having risen five times since August 2006, many homeowners have been left struggling to keep up with repayments on their mortgages.

Over the first half of this year the number of repossessions in the UK has rocketed, and this is because many homeowners on variable rate mortgages have seen their repayments rise five times in rapid succession, and have simply been unable to cope with these rises. This has affected newer homeowners even more, namely because the high cost of property in the UK has meant that those purchasing a property in the past couple of years have already had to mortgage themselves to the hilt with a massive loan, and a series of five 0.25% rises on such a large loan has resulted in many newer homeowners having to find a small fortune each month to cover the rise in repayments.

Problems could worsen

The problems with repossession levels in the UK are set to get worse according to many experts, and this is because there are many homeowners that took out low fixed rate deals on their mortgages two or three years ago, when interest rates were still quite low. Many of these homeowners are enjoying fixed rates of just 4.25%. However, since they took out these low fixed rates interest rates in the UK have shot up, and unfortunately thousands of homeowners are due to see their low fixed rate periods come to an end in the coming months. This means that thousands of homeowners will see their interest rate revert to the lender’s standard variable rate, which in some cases exceeds 8%, and will therefore see their repayments shoot up by hundreds of pounds a month in some cases.

The level of repossessions is therefore set to rise even further, and one debt charity has even set up a repossession advice centre to help those that face repossession as a result of the sudden rise in interest rate and repayments. Many homeowners will struggle to keep up with these repayments, which is where the problem lies.

Prepare yourself in plenty of time

If you are currently on a low fixed rate and your lower rate is due to come to an end, it is vital that you do some preparation to minimize on the financial impact once your fixed rate comes to an end. For the past three months the Bank of England has left interest rates on hold, and it is widely predicted that the rate may even come down before the end of the year. With this in mind a number of lenders are offering some competitive deals on remortgages, and by getting yourself organized you can make sure that you have another more affordable mortgage lined up. You should do this in plenty of time, however, otherwise you will suddenly find that your interest rate reverts to your existing lender’s variable rate, and this could cost your dearly. However, you should also remember that there may be exit fees involved in closing your existing mortgage, as well as early redemption fees, and there may be set up fees involved in getting another mortgages, so do make sure that you weigh up these costs to ensure that it is worth switching.

Of course, you may be in a situation where you have already come of your lower fixed rate and are now struggling to meet repayments based on your lender’s standard variable rate. If this is the case you need to make sure that you seek advice as early on as possible rather than missing repayments and risking repossession. In light of the recent interest rate rises many lenders will be sympathetic to such situations, and it is well worth contacting your mortgage lender to discuss your options – in the meantime you should make sure that you continue to make repayments however.

You could also seek advice from a debt charity or the Citizen’s Advice Bureau, even if repossession proceeding have been started, as there are ways to come to an agreement before the repossession actually goes ahead. This could help to ensure that you do not lose your home as a result of the rise in interest rates, and that you are not left struggling with repayments that you cannot possibly keep up with. The worst thing that you can do if you are struggling to repay your mortgages is to miss repayments and not even bother to discuss it with your lender, as this will result in action being taken against you that could not only damage your credit but could also result in the loss of your home.