by Mark Johnston
With the current levels of unemployment and other economic changes more than 3 million households are in major financial difficulty with a further 3 million financially vulnerable.
Research for a debt charity shows that approximately 3.2 million households are either three months behind on mortgage payments or other such debts.
The Council of Mortgage Lenders (CML) is widely regarded as the most authoritative source of data and it states that they were 36,300 repossessions in 2010, these were shown to be 24% down on 2009, however the forecast has also shown it may rise to 40,000 this year.
Although some analyst’s have suggested these figures are not an effective collation of data as many of the lenders most likely to seek repossessions fall outside of the Council of Mortgage Lenders (CML) membership.
Some lenders it seems start repossession when their borrowers fall just a couple of months behind on their repayments.
The chief executive of United Kingdom Asset Resolution (UKAR), Richard Banks suggests that a huge number of families face home repossessions unless they start to prepare for the impact of higher interest rates, saying a “tsunami” of homeowners would loose their homes.
However figures by the United Kingdom Asset Resolution (UKAR) show that some 23,000 of the 750,000 mortgages it owns are at least 6 months in arrears. Although the United Kingdom Asset Resolution (UKAR) do carry a higher percentage of riskier mortgages, those given to people who ‘self certified’ not providing full proof of earnings and also buy to let landlords.
The governor of the Bank of England, Sir Mervyn King fears that currently the wave of home repossessions are overdone as economic conditions are not right for an interest rate rise. The only reason interest rates would rise would be in the context of a much stronger economy with unemployment falling instead of rising.
When a mortgage lender repossesses a home their legal obligation and goal is to sell the property for the best price possible. The property will be rushed on to the market with help on valuation and advice on how to best make the sale.
Many lenders can add legal costs and estate agent fees on to the otherwise hefty debt.
In the case of repossession there are two possible outcomes from the sale, firstly the sale can provide a surplus on top of what the lender is owed; this surplus would be given back to the borrower, Secondly the property sale may not make enough through the sale to pay off the lender. This is known as a ‘shortfall debt’ and in this case the borrower must pay this.
In 2000 all mortgage lenders that are members of the Council of Mortgage Lenders (CML) agreed to pursue ‘shortfall debt’ within a 6 year period. However the lender can continue to charge interest on this debt until it is repaid.
In many possible repossession cases borrowers are always advised to speak to the mortgage lenders to try and work out a solution to any arrears.
Borrowers should make sure they do not agree to pay back more than they can afford to as unrealistically high and unaffordable repayments can put the borrower in a worse position than before, as in effect they could default for a second time.
In the long run it is better to stand firm and suggest an affordable level of repayment.
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