If you’ve fallen behind on your mortgage payments or simply can’t afford to continue paying your mortgage, then you may be considering voluntary house repossession. However, this isn’t the best thing that you can do and has many unwanted repercussions. Voluntary house repossession is certainly not the way to get rid of your financial problems and we will now take a closer look at some of the pitfalls of doing so.
First, as mentioned above, by voluntarily giving up your home, you won’t immediately get rid of your financial issues. Even though the bank or lender that you used for your mortgage will try to get the property sold as quickly as possible, you will still need to pay the monthly mortgage until it is sold. If you are not capable of doing so, then these will pile up and you will also likely need to pay off the added interest as well.
Additionally, when lenders sell these types of houses, they are usually put up for sale for a fraction of how much they are worth. This is done to get them sold as quickly as possible. However, the downside of this is that they are usually sold for much less than what is still owed on them. As a result, you would still be responsible for paying off whatever is not covered by the sale. Unfortunately, this is a very likely scenario since most sales on repossessed houses are typically full of buyers who are looking for bargains, so the chances are high that the final sale price would be low and won’t cover the full value of the home.
Next, even if you happen to get the house sold at a price point where you don’t owe anything, you’re still not financially clear. Basically, if after the sale, you have a cash lump sum, then there is a high chance that you will also lose your tax credits and means tested benefits. Basically, if you have benefits such as job seekers allowance or universal credit, these will likely be drastically reduced or even withdrawn. Additionally, you will likely have to pay capital gains taxes.
Another pitfall is that your credit rating will be negatively affected. Unfortunately, even if you voluntarily allow your home to be repossessed, this won’t matter to credit rating agencies. On your file, it will show that your home was repossessed which will make buying another home via mortgage a lot more difficult in your future. Additionally, you will also have problems whenever you want to get any loans, whether they be small loans, a car loan and even with hire purchase. Additionally, you can also have problems with renting as well. The majority of letting agencies perform credit rating checks when you apply, and the repossession will show up on your file. This will make you a high-risk renter which will reduce your chances of successfully getting the home or apartment that you want.
The next downside of voluntary house repossession is that there are lots of hidden costs. When your lender sells your property, they won’t deal with the costs of selling the property themselves, but pass these costs back onto you. So, you will have to pay the fees for the real estate agent, legal fees, cost for energy certificates and more. Basically, whatever costs are incurred during the selling process, you will have to pay them. Even if the house is sold at an auction, you will also need to pay the necessary auction fees.
Next, once you give up your property, you won’t have anywhere to live. Homelessness is a very real possibility and you may even be intentionally homeless. This can cause your homeless applications to be rejected, especially if you haven’t tried to find any solutions to your financial problems.
As you can see, voluntary house repossession is not the best answer to your financial woes and there are other alternatives. If you run into difficulties paying your mortgage, the first thing you should do is set up a meeting with your lender so that you can discuss what options are available. There is a good chance that the lender can reduce your monthly payments and increase the length of the mortgage term. Another possibility is that they can give you a repayment holiday or they can even stop interest charges.
Additionally, if you can, you should try other personal alternatives such as getting a second job, taking up extra shifts at work, working online etc. It is possible to earn extra money in order to keep up with your mortgage payments.
In conclusion, we have just looked at the pitfalls of voluntary house repossession. As you can see, giving up your home does not mean that you are no longer financially responsible as there are many additional costs that you will be liable for. So, if you are in this situation, be sure to talk to your lender and do everything that you can possibly do to avoid voluntary repossession.