UK Home Owners Balancing On A Knife Edge – How To Avoid House Repossession
There has always been a lot of talk surrounding the UK housing market.
The UK seems to regularly put property in the lime light and amongst it all, there are always preachers of doom. People yelling about impending property market crashes have been about for years, but recently this number seems to have increased.
Are they all misinformed, or is it possible we’ve missed something?
Increased Risk of Property Slump and Repossession
An Englishman’s home is his castle. The adage still holds a lot of weight, the UK is obsessed with home ownership and rightly so, the number of buy-to-let investors make it financially crazy to rent. The English Housing Survey revealed that the proportion of renters planning to buy at some point is currently 60%. This obsession is set to come at a cost.
While the number of people who are interested in homeownership has remained the same, it’s well known that there has been a significant slump in those aged 25-34 who have managed to get on the property ladder. The result of this has become a number of complex schemes and lower interest rates dedicated to helping first time buyers. Has it helped? Not really. All it means is that house prices rapidly spiral out of control, yet the percentage of income spent on mortgage remains stagnated. This is not a pattern that can continue.
Housing trends are displaying similar traits to those prior to the market crash over 15 years ago. You’d have thought we would learn, but homeowners still desperately clutch to their homes, assuming that even if a crash is imminent, houses will eventually recover and retain their original value.
The only exception to the rule appears to be in the North of the UK where house prices are not dramatically increasing at an unsustainable rate meaning they are safer for home owners and investors. Surprisingly this steady consistency in the housing market surrounding areas such as Newcastle has not affected buy-to-let investors who can still retain a sizeable profit due to high rental demand exceeding that for homeownership. North east property investment markets as a result have seen some very healthy growth in their rental yields in the last year.
Low Mortgage Rates – Means More Borrowing
Since the start of 2017, mortgage lenders seem to have been all hooked into a price war on low fixed long-term rates. This seems to be good news for first time buyers but has actually generated a wide-spread flurry of panic buying as people rush to get a cheap fixed rate mortgage before prices rise.
This could potentially see another influx of bad loans being mis-sold setting up a dim future for these homeowners. If this group takes out bad mortgages, seemingly history will repeat itself as foreclosures and repossessions numbers become prominent. This, in turn, could affect entire neighbourhoods and areas as the repossession rates lower the value of homes in the same area.
Increased Numbers of People Refinancing
These low mortgage rates combined with rising house prices have created an environment that promises to reward the bold. Those willing to risk re-mortgaging their property for home improvement appear to have made a smart investment.
The only problem that leads on from this is the potential for families and individuals to fall into negative equity. Negative equity occurs when the mortgage amount owed is larger than the value of the house. It is harder for homeowners who find themselves in this situation to sell their home due to the difference in price between their current house and the property they are looking to buy.
Negative equity becomes common in the event of a market crash and it is a concerning thought that this could suddenly affect millions of people simultaneously.
How to avoid repossession
The average UK household is ultimately piling on heaps of debt with the hope that as house prices continue to rise investment will become worth it. If you are considering taking out a loan or mortgage, stop and think. Do your research and weigh up your options.
The UK currently has £15 billion in late mortgage owed and more than 80,000 people are in arrears of more than 2.5%. Additionally, only half of all mortgage holders hold life cover. These are worrying figures.
Nobody can predict the future, but it’s wise to take precautions if you’re committing to a mortgage that could last 25 – 30 years. It’s not a pleasant thought, but if a partner who was earning the majority income were to pass away or fall ill, would you be able to continue with your payments? Insurance might seem like an unnecessary expense, but it is definitely something worth considering to protect your home or family.
Taking control of your financial responsibilities is the quickest way out of debt and the best way to protect yourself from home repossession. If you are facing difficulties, remember to be clear with your lender, they will often be more reasonable than people expect and can initiate periods of ‘repayment holidays’ where payments are slowed or reduced in the event of an unforeseen circumstance that prevents you from working.
Set a monthly budget and stick to it as much as possible. See if you make additional annual payments on your mortgage, depending on the amount this can often reduce the amount of time on your mortgage by a significant number of years.
What can you do?
If you’re reading this and have decided that you should do something as well as budgeting, there is the option to sell up or downsize now and re-buy in the occurrence of a crash. While a smaller home’s value won’t increase in value at the same rate as larger properties, it can help to minimise potential losses.
If you are struggling with repayments or are facing house repossession there are a number of government programs designed to support you. These can vary depending on your situation, providing everything from advice to Civil Legal Aid.
You only want to declare bankruptcy as a very last resort. Bankruptcy can hang over you for the rest of your life and make it close to impossible to ever borrow money again. Before it gets to that point there are still other options you can consider.
You could use a cash buyer company dedicated to helping prevent the repossession of UK houses. These companies can sell your home within 7 days and allow you to get a better deal than you would get if your mortgage lender was to take control of the transaction.
Overall, the evidence shows that the quicker you act and the further in advance you prepare, the more options you will have.