Sell and Rent Back vs. Repossession
Repossession continues to scare families throughout
the UK. The figures released by the Council of Mortgage Lenders show
the chaotic economic situation in the country. According to CML 40,000
properties were repossessed last year and some private forecasts from
loans firms say that there are expected to be 75,000 repossessions
for the year 2009. Mortgage arrears were around 182,600 by the end
of last year and it is expected to rise to an alarming figure of 500,000
in 2009. These 500,000 families are expected to fall into arrears
for 3 or more payments.
These figures do not include the numbers for sub-prime
lenders as they are not members of the CML and consequently not required
to pass information to them. This can mean that the figures released
can be a lot worse than they already are. Sub-prime lenders are private
institutions – but sometimes affiliate of mainstream lenders
– that lend to borrowers who do not qualify for loans from mainstream
lenders. They rarely identify themselves as sub-prime and a big indication
that they are sub-prime is their substantially higher rates compared
to mainstream lenders.
Mortgage arrears are the first signs of repossession.
Although there is some good news which is 11% less repossession than
was predicted by CML for 2008 this could just mean a delay with inevitable
repossessions being carried over into 2009. The reason is that banks
are slightly less radical in their decision to repossess being more
tolerant about arrears. Hopefully these 11% less repossession in 2008
is not going to add to 2009 figures. The truth is, if payments arrears
exist for more than 3 months and with job losses figures of 1.97 million
– the worse figure since 1997 – you don’t need to
be an expert to see how it is going to end.
According to the CML there is a considerable increase
in the number of people abandoning their homes by opting for voluntary
repossession which means handing back the keys to their lenders and
vacating the house. Desperate situations require desperate measures
but this should not be an option at all because the consequences are
highly detrimental for the homeowner. Voluntary repossession can be
much more expensive than the formal procedure because alternative
accommodation has to be found together with additional costs of solicitors
and court fees plus the borrower will still be responsible for any
remaining debt if the property is sold for less than the outstanding
debt.
The government announced in December 2008 a mortgage
support scheme but it is not working to its full capacity and meanwhile
200 families are expected to lose their homes each day in 2009. Private
investors are also collaborating in reducing these numbers through
the sell and rent
back scheme offering a variety of options to families in danger
of repossession.
The key actions are negotiation, strategy and creativity
to get to the other side of this crisis still in possession of our
own homes. The companies giving unsecured loans such as credit cards
and small independent cash advances are using very aggressive strategies
to recover their loans which leads many debtors to repay these before
making their mortgage payments. This is not the best course of action
and only the minimum agreed payment should be made on unsecured debts
so that mortgage repayments can be prioritised.
The sell
and rent back scheme can be an option to consider if the homeowner
is not in negative equity. Provided the property has some equity the
sell and rent back scheme is a strategy that should be pondered.
Consider all options without prejudice and don’t
rely on false hopes that everything is going to be alright. The majority
of homeowners repossessed thought they should have acted earlier on
the first signs when they struggled to pay their bills.
