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Clare Francis: We've heard a lot in the last week or so about rising levels of mortgage arrears and an increase in the number of people having their homes repossessed. And with the Governor of the Bank of England and the Prime Minister conceding for the first time, in public at least, that we are heading into recession, there seems unlikely to be any let up any time soon.
Figures from the Council of Mortgage lenders revealed that in the first six months of the year the number of repossessions soared 48% to 18,900 and it's expected to hit 45,000 by the end of the year.
With the housing market facing its biggest slump since the early 90s, many of those who are struggling to meet their mortgage payments can't alleviate the problem because they can't sell their homes.
The Prime Minister has announced new guidance for judges aimed at minimising the number of homes that are repossessed but what does all this mean and what should you do if you are struggling to meet your mortgage payments every month?
Louise Cuming, head of mortgage services at moneysupermarket.com is with me to answer some questions.
Q1: So Louise are you seeing an increase in the number of people calling you because they are struggling to pay their mortgage?
Louise Cuming: Yes, I mean there's two issues: one, there's certainly an increasing number where affordability is a real issue, and secondly there's a real growing percentage of people who are coming to shop around for a new deal and there just isn't any deals out there, and inevitably being stuck on a higher rate will start to cause some problems going forward.
Clare Francis: Because obviously they are coming to the end of a low / cheap fixed rate or discount or tracker and leaping up to their provider's standard variable rate (SVR) and maybe not being able to afford that jump in payments?
Louise Cuming: Absolutely, yes.
Q2: So what can be done? What do you advise them, what do you say to them?
Louise Cuming: Well, initially it's always about talking to your lenders, and by that I don't just mean your mortgage lenders - you've got to look at all your outgoings as a whole. Talk to your credit card providers, talk to your personal loan providers and talk to your lender, and really try and get to a place where all the payments are affordable within your budget.
But if you're looking specifically at mortgages lenders really do want to help and you've got to go and talk to them, and there are some possibilities. They can either for short-term problems make concessionary payments - so for a shorter term they'll allow you to pay less than your contractual payments to tide you over things like potentially you've lost your job, you know you're going to get another job but the other job doesn't start for a couple of months; or maybe you're coming to end of maternity leave, you're going back to work but for the short term you're not going to be able to afford the high payments - then lenders will be sympathetic.
Otherwise they can organise for you to repay arrears over a period of time so if you're behind by a couple of payments that might seem like a huge amount but if you spread that over 1 year or 2 years suddenly it's not so daunting. So that's the first thing - go and talk to your lenders.
Q3: And when we're talking about people in arrears, obviously by arrears we mean a missed mortgage payment - how many missed mortgage payments does it take before the lender will start repossession proceedings or stuff like that? Because we've heard a lot about some lenders being accused of repossessing homes without actually giving the borrower a chance to get themselves back on track and sort their problems out.
Louise Cuming: That is a really good question. At a high level lenders have to treat cases of financial hardship sympathetically, but obviously sympathetically can be different in different eyes. Every lender will have their own in-house arrears procedures and mainly you would need to be at least three months in arrears before repossession proceedings were started.
Now there's no doubt that if you've got more equity in your house you are going to be better off because lenders can often be a lot more sympathetic and allow you to make lower payments if they know there's a lot of equity in your house. But if you've made an arrangement or an agreement to make lower payments for a period of time, if you meet those payments that doesn't count as you being in arrears because you are doing exactly what you agreed to with your lender.
Once the repossession proceedings have started there has always been a kind of unwritten law that judges have to be really satisfied that repossession is the last resort. That position has been even more strengthened in the last couple of days where there has been a directive going out to courts to say that, judges have to have evidence that lenders have explored every other avenue before they go down the repossession route.
Q4: If you get served with a repossession notice, if you get the letter through the door, is there any way you can stop the process?
Louise Cuming: Legally you can repay your mortgage and retain ownership of the property right up until the end of the day that repossession order takes effect and your house is sold. So even though you're served with a repossession order, after that it's quite a long job because the court dictates that the lender has to get the best price possible. So they've got to go through a process of getting various estate agents to give them valuations, and then of course they've got to sell the house - and all that time the borrower has the opportunity to repay the mortgage in full and retain ownership. So it is not until the final contracts are exchanged for the property to be sold in repossession that that borrower definitely loses their home.
Q5: But you can be kicked out before that can't you? Because there was a case I saw on the news over the weekend of a guy whose home had been repossessed but it's still empty because the lender can't sell it?
Louise Cuming: Absolutely, once the repossession order takes effect there will be a date by which you have to vacate your property. At that stage then the lender takes ownership of the property in terms of the locks are changed, the borrower is not allowed access to the property, however you can still get it back by repaying your mortgage right up until the exchange of contracts.
Q6: Because it does seem really harsh that for people to be booted out of their home and then have to potentially drive past it every day or walk past it, and see it's just empty because it can't be sold?
Louise Cuming: Obviously from a lender point of view the fear is that if a borrower fears that they are going to lose their house then they're not going to take care of it, not going to have care and attention of the property, so there's that side of things; but a lot of lenders now are actually, even when they've been granted repossession orders, allowing people to stay in their property because it is easier to sell a property with people in it rather than an empty property.
And of course there's also the problem of re-housing people when we know that social housing is really at a premium at the moment.
Q7: It's all quite depressing stuff isn't it - is there anything you can say to people that might just help them a little bit or just give them [help] if they're struggling? If it was me, I'm having problems and I don't know how I'm going to pay my mortgage next month, what would you say to me, what should I do now before I've actually missed the payment?
Louise Cuming: I think it is just realising that to talk helps, and if you go and sit down with all your income and expenditure with a professional its amazing how much better you feel and also how many things that you can do to bring that expenditure down.
And I really do think it'll help that the directive now to lenders is just to remember that its your responsibility to act sympathetically and accept lower payments if at all possible, spread the arrears over as long a period as possible - a £1,000 sounds an awful lot of money, but if its spread over the rest of the term of your mortgage its not a lot - so it really is good to talk, and you're so right, the sooner you do it the better, because for each months payment missed then the amount that you owe gets more and more frightening, whereas if you do it before you miss the first payment because you know that you're going to struggle then hopefully you can get things in place sooner.
Clare Francis: Alright, thank you Louise.
