The coming recession means more homes being lost, but there are measures you can take to reduce the threat.
REPOSSESSIONS ARE on the rise - and that means misery for many ordinary families. A total of 11,300 properties were repossessed in the third quarter of 2008 - 12% higher than the second quarter, according to the Council of Mortgage Lenders (CML).
Graeme Brown, director of Shelter Scotland, the housing and homelessness charity, says: "Behind these figures are thousands of families facing sleepless nights worrying about how to make their next mortgage payment, or waking up to the frightening reality of repossession."
There are no separate figures for Scotland, but experts have noticed an increase in the number of Scottish homeowners struggling with their mortgage debts. Mike Dailly, principal solicitor at Govan Law Centre, says: "There has been a doubling of repossession cases at the centre over the past year. In fact, things got so bad in April that we had to stop taking on any new cases because we couldn't cope with the demand."
The situation is likely to get worse as recession bites, with more people losing their jobs and unable to meet their monthly mortgage payments.
The government has acknowledged the seriousness of the problem and announced in the prebudget report that most of the big lenders have agreed to a three-month moratorium on repossessions. In other words, they will not move to repossess a home until the borrower is at least three months in arrears. But is it enough? Dailly doubts it. "The moratorium is not legally binding and pretty much confirms the status quo. I am not convinced it will make much difference," he says.
Lenders have been criticised for their sometimes hardline stance with borrowers. There are reports, for example, that they are unwilling to negotiate with struggling customers. Chris Tapp of the charity Credit Action says: "We have cases where borrowers have made a reasonable offer to their lender, perhaps because they have missed a payment or they have fallen short over a couple of months. But the lenders are in some cases totally intransigent."
Some banks and building societies are even turning an unsecured debt, such as a personal loan or credit card, into a debt secured against your property by raising a so-called petition of adjudication. Dailly says: "It is an aggressive practice that is increasingly employed by at least one of the big banks in Scotland - and means you could lose your home because you overspent on your credit card."
The UK government recently drew up a "pre-action protocol" to force lenders to follow strict guidelines before they repossess homes. But the protocol does not apply north of the Border - and the Scottish government has refused to implement similar measures. Instead, deputy first minister Nicola Sturgeon recently announced plans to spend an extra £3 million over the next two years to enhance the legal advice and support available to families across Scotland who face the prospect of losing their homes.
So what should you do if you get into difficulty with your mortgage? Here is the Sunday Herald's 10-point survival guide.
1. Don't ignore the problem
If you realise you are struggling to meet your monthly payments, take action. Can you cut down on spending without causing too much hardship? Is there any way you could increase your income, perhaps by letting a room in your house?
2. Make your mortgage more affordable
Borrowers with big mortgages might be able to bring down the monthly payments by switching from a repayment to an interest-only loan, or by extending the term of the mortgage to make the monthly payments more manageable, at least temporarily.
3. Contact your lender
If you miss a mortgage payment, your lender will usually contact you. Don't ignore them. Lenders aren't always sympathetic, but you have a greater chance of forestalling court action if you make it clear that you are willing to work out a solution to your debt problems.
4. Get advice
You can get support from various charities and consumer organisations, including Shelter and Citizens Advice. The services are free and trained experts can often help you negotiate with lenders.
5. Check your benefit entitlement
Some borrowers might be entitled to state assistance with their mortgage payments. You can claim Income Support for Mortgage Interest (ISMI) if you are on income support, jobseekers' allowance or pension credit and are struggling to pay your mortgage. The benefit is usually paid directly to the lender by the Department for Work and Pensions (DWP) and can help cover all or part of the interest - but not the capital - on your mortgage payments.
You can currently claim help with the interest on loans of up to £100,000. But the chancellor announced in the prebudget report that the limit will rise to £200,000 in April. The government has also cut the waiting time from 39 weeks to 13 weeks.
When you apply for ISMI, the interest payments are calculated by the DWP at a standard rate of 6%, so they are unlikely to be the same as your mortgage rate. If you are paying a higher rate of interest, you will have to make up the difference.
6. Prepare for bad times
You might not be worried about falling into arrears, but it's always a good idea to prepare for the worst. Many lenders will let you overpay the mortgage, so you can build up a buffer in case you hit bad times.
7. Take cover
You may already have payment protection insurance (PPI), which should pay out if you cannot meet your mortgage payments because of an accident, sickness or redundancy. But check your policy, as there are often exclusions. If you don't have insurance, you can buy PPI from a range of companies, not just your lender. Premiums vary widely, so make sure you scour the market for the best deal. And again, check any exclusions.
8. Think before handing the keys back
If you are overwhelmed by your debts it can be tempting to simply hand in the keys to your property and walk away. But it's not necessarily a good idea. The debt will not go away and you will probably find it extremely difficult to get a mortgage in the future.
9. Turn up in court
All is not lost if the case comes to court, because you can still stave of repossession. All you have to do is convince the judge that you can come up with a reasonable proposal to clear your debts. Remember: it is the judge that makes the decision whether or not to repossess your house, not the lender.
10. Consider selling your home
If things look particularly bleak, you should consider selling your property and either buying a smaller home or living in rented accommodation until you get back on track. It's not a quick or an easy solution to your debt problem, but it's a lot better than ending up in court fighting a repossession writ.
THE REPOSSESSION PROCESS
If the lender decides to take court action, an Initial Writ will be served. You have 21 days to respond to the Initial Writ, so you should seek legal advice quickly. If you cannot see a solicitor within 21 days, but can make an appointment a few days after the deadline, Shelter advises that you lodge in court the Notice of Intention to Defend, attached to the Initial Writ, stating that you intend to defend the action, together with the required court fee (currently £75). Your solicitor will then have more time to respond to the Initial Writ.
When you meet with your solicitor, he or she will probably draft a Mortgage Rights Act minute, which is your opportunity to give your reasons why the court order should be suspended. It will include the reasons why you got into financial difficulty and your plan of action, such as paying your arrears in instalments or even selling your property.
Sometimes, lenders agree to the plan that you have laid out and you can settle your case out of court. Otherwise, there will be a full hearing of the case.
At the hearing, the sheriff will hear evidence from you, any witnesses and your lender.
If you do not take action in time when you receive the Initial Writ, there will be no hearing in open court, the lender can ask the court for decree in absence and you will then receive a notice advising you that you are going to be evicted.
Even if you receive this notice, you should still seek legal advice. You may, in certain circumstances, be able to apply to the court for another chance to have your case heard.
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