Voluntary repossession is the deliberate choice to give back your property to the lender to resolve when debt becomes overwhelming. Now, you might be wondering what the consequences might be if you select this option.
Let us walk you through it. You’ll be intrigued to find out…
You could write Off Your Unaffordable Debt
Table of Contents
MORE
LESS
One way to settle your unaffordable debts is to accept Voluntary repossession and give your property back to your creditor to resolve it.
With this article, we have discussed what voluntary repossession is and whether you can use this option to solve your debt issue effectively. Keep reading to find them out.
What is Voluntary Repossession?
Voluntary repossession is a process where homeowners who are facing challenges in keeping up with their mortgage payments proactively decide to hand back the keys of their home to the lender. This step helps avoid the unpleasantness of forced repossession.
Simply, it means you will have to move out of your home in order to let your lender sell your property to recover their debts. Yet, opting for voluntary repossession in the UK has implications that every homeowner must understand.
Most of the time, people choose this Voluntary Repossession path because they have no other way to settle their debts. Additionally, they alone can’t sell their houses because their properties are in negative equity.
What are the Consequences of Voluntary Repossession UK?
Choosing voluntary repossession might seem like an immediate relief, but it comes with repercussions. In the UK, you remain accountable for the outstanding amount even after house repossession is successful, but the sale amount of the house is not enough to settle the debt.
Also, it can affect the following:
Additionally, your credit score might take a hit, making future financial ventures more challenging. Opting for voluntary repossession might be a viable choice if you wish to prevent the situation from escalating to the bailiff stage.
Could the Council Help with Housing Options?
Indeed, the council can be a beacon of support during house repossession UK scenarios. They can provide alternative housing options, especially if you’re deemed vulnerable or have dependents.
Local authorities can also offer guidance on managing council tax arrears to prevent bailiff intervention. However, it’s essential to apply promptly and provide all required documentation to ensure you get the support you need.
Yet, one drawback of returning the keys in a voluntary repossession is that the council might interpret it as a deliberate act of making oneself ‘intentionally homeless‘.
Your actions could impact the level of assistance the council is willing to provide. According to Shelter, the housing and homeless charity, you are not required to surrender your keys unless you have a new place to reside.
However, prolonged delays may lead to other financial issues, such as overdue council tax payments. This delay could eventually result in bailiffs being dispatched for council tax non-payment.
How Would a Voluntary Repossession Affect Your Benefits?
Benefits like housing assistance could be jeopardised by voluntary repossession when you vacate your home by returning the keys. The exact effects depend on the nature and source of the benefits.
This is due to the potential change in your eligibility resulting from the money you may receive from the sale of your house, known as equity, after settling all outstanding debts.
The Department for Work and Pensions determines the likely benefits based on the current market value of your home. If your equity exceeds £6,000 and you’ve opted for voluntary repossession, it will have an effect on your benefits.
In summary, your benefits could be reduced or cease altogether.
Conversely, your benefits should remain unaffected if you are in negative equity or anticipate receiving less than £6,000 from your home’s sale.
It’s important to acknowledge that equity may be disregarded in certain circumstances. They will disregard in situations such as when you left your home due to a recent relationship breakdown or if you have taken reasonable measures to ensure the property’s sale.
Therefore, It’s crucial to consult with the respective agencies to understand any potential fallout before making a decision.
What Happens When a Lender Sells Your House?
Once the lender takes over your property after voluntary repossession, their primary aim is to sell the house as soon as possible. Typically, the house is sold at an auction or via estate agents.
While they aim to get the best price, it might not always reflect the market value, leading to potential shortfalls in covering the debt.
Additionally, it’s crucial to understand that you have the option to sell your home before it reaches the repossession stage.
We strongly recommend you to seek debt advice from a professional debt advisor to find a solution before things escalate to this extent.
How is the Sale Price Assessed in a Voluntary Repossession?
Lenders usually employ professional evaluators to determine the best sale price. This price is assessed based on current market conditions, the property’s state, and locality.
However, because the lender’s priority is a swift sale, sometimes the pricing might be on the lower end of the market spectrum.
Furthermore, there is a possibility that the lender might choose to sell it at auction if your property is in negative equity. As a result, it could potentially result in a significantly lower sale price.
What Happens When Lenders Take Possession of Your Home?
The very idea of lenders taking possession of one’s home is enough to cause sleepless nights. But knowledge is power. The more you understand about the process, the better equipped you’ll be to handle it.
So, what exactly unfolds when this happens? Let’s dive deeper.
When lenders decide to take possession, they don’t just appear at your doorstep unannounced. There’s a method to the madness:
First and foremost, you’ll receive a formal notice from the lender. This is a legal requirement. This document will detail:
- The reasons for the impending voluntary repossession.
- The amount you owe.
- The deadline by which you should settle the debt to prevent repossession.
Once the possession process initiates, the lender’s primary objective becomes safeguarding the property. What does this mean for you?
- Changing of locks: It’s standard procedure. This ensures that the property remains undisturbed and prevents potential damage or unauthorised access.
- Property inspection: Lenders will assess the condition of your home. This is crucial for them to gauge its market value and understand any repair or renovation requirements.
But what about your possessions? It’s a burning question many have, so let’s address it.
As previously mentioned, they are obligated to sell it for the highest possible price when a lender repossesses your property. In cases of negative equity, a property may be auctioned.
Nevertheless, the standard practice for most mortgage lenders is to utilise the services of an estate agent to secure the highest achievable price for the property.
Imagine walking away from your home and leaving behind memories and belongings. It’s heart-wrenching. So, what becomes of these items?
Lenders typically store personal belongings for a brief period. They won’t immediately discard your possessions. During this window:
- You’ll receive communication regarding how and when to collect your items.
- Some lenders may charge a storage fee, so it’s essential to act swiftly.
If, for some reason, you’re unable to retrieve your belongings within the stipulated period, they might be disposed of. This disposal is usually the last resort for lenders, but it’s a possibility you should be aware of.
Many confuse voluntary repossession with forced repossession. While both involve losing your home, there are stark differences:
- Voluntary repossession is when you, as the homeowner, make the choice to hand over the property to the lender due to your inability to continue with mortgage payments.
- Forced repossession happens when you’re not in agreement, but the lender proceeds due to accumulated debt.
Understanding these distinctions is crucial. It helps you make informed decisions and potentially negotiate better terms with your lender.
After consenting to voluntary repossession, you are relieved from making any more mortgage payments once the court issues an ‘outright possession order.’
However, you remain responsible for the accrued interest on the outstanding amount until your house is sold.
The lender becomes responsible for maintenance and repairs upon repossessing your property. They are obligated to cover all maintenance and repair expenses until your property is sold.
In summary, the lender must address urgent and necessary repairs and may also manage essential property upkeep.
However, the drawback is that the lender will incorporate these costs into your existing debt.
What Happens Once Your Home is Sold?
Upon sale, the funds are used to cover your outstanding mortgage and any additional costs incurred during the repossession and sale process. If there’s any surplus, it’s returned to you.
They will acquire the following fees after your property gets sold,
However, if a deficit remains, you’re responsible for paying it. Conversely, if there’s money left over from selling your property, it will be used to repay other debts of yours that you may have taken by securing your house.
What Happens When a Sale Doesn’t Cover All Your Debt?
You’re in a ‘shortfall’ situation if the property’s sale doesn’t fetch enough to clear your debt.
Here, the lender can pursue you to repay the outstanding amount. It can sometimes be a substantial sum, adding to your financial woes. There are things that you could do to settle the rest of the debt. You can sell your valuable other assets to cover the rest, like your car. But this option is also possible only if you fully own them.
Conversely, The mortgage indemnity insurer or lender can decide whether to write off the outstanding debt if you can convince them enough with reasoning. But it’s rarely likely to happen.
Will a Voluntary Repossession Affect My Credit?
A voluntary repossession record can stay on your credit file for 6 years. As a result, you may find hardship in taking new credit cards, loans, mortgages, or even some rental agreements.
It’s because your credit profile will be flagged as a ‘High risk’ customer as if you have a history of not settling the debt or facing hardships in paying debts for a considerable time.
Even if you clear your debts through voluntary repossession, your credit history will appear significantly unfavourable to credit agencies for a minimum of six years.
Can I Get a Debt Solution?
A mortgage is a secured debt. Therefore, it cannot be written off with the help of debt solutions. However, you can take the aid of a debt solution to manage some of your unaffordable debts.
There are a number of other alternative debt solutions available in the UK. Sometimes, you may find hardship in agreeing to unaffordable payment plans suggested by your Debt owner. In those situations, it’s better to apply for a debt solution to resolve your debt issue effectively.
But keep in mind you need to fulfil certain unique conditions in each of these debt solutions in order to get acceptance. Choosing the right debt solution will help you in solving your debt issue while choosing the wrong will make your financial situation worsen.
Therefore, it’s better to take debt advice from a professional debt advisor if you find hardship in selecting a debt solution alone.
Feel free to fill out our online form by clicking here if you want personal help from our Money Advisor Team based on your current financial standing.
Is There Any Free Debt Advice Available in the UK?
Yes, there are a number of charity debt organisations in the UK where you can take debt advice and services completely free of charge. Taking their help will surely give you enough guidance to make an informed decision.
They can guide you through your options, ensuring you make informed decisions. Below are some of the charity debt advising organisations where you could take aid for free of charge.
What is the Debt Breathing Space Scheme?
The Debt Breathing Space Scheme allows eligible individuals a temporary respite from creditors, giving them time to sort out their finances. During this period, added interest and charges are frozen, providing genuine relief. Plus, enforcement action will not be conducted within this relief period.
It began in May 2021 and offers 60 days with no additional fees, interest, or enforcement actions after eligibility checks.
There are two types:
Lastly, What is Voluntary Repossession? Is it the Right Choice for You?
In essence, voluntary repossession is a proactive yet drastic solution for homeowners struggling with their mortgages. Remember, the long-term implications are significant while it offers immediate relief from mounting debts.
You have the option to consult a debt management company or reputable UK debt charities for assistance. A debt expert can provide guidance, suggest available debt solutions, and help you determine if voluntary repossession is the appropriate course of action.
Key Points
- Voluntary repossession is a decision where homeowners hand back the keys to their property to their lenders, enabling lenders to sell and recoup outstanding debts.
- Before any voluntary repossession procedure, lenders provide homeowners with a formal notice detailing the reasons and amounts due.
- After initiating repossession, lenders focus on safeguarding the property, which includes changing locks and inspecting the house.
- Personal Belongings Post Repossession: Items left behind in a voluntary repossession are stored for a brief period, giving homeowners a chance to reclaim them.
- A significant number of individuals in the UK are eligible to legally write off a portion of their debt.
- Council Perception: Opting for voluntary repossession might be seen as making oneself ‘intentionally homeless’ by some councils, which can influence the type and extent of assistance offered.
- Consequences on Benefits: Any equity gained from the home’s sale during voluntary repossession might alter your benefits, potentially reducing or even halting them.
- Difference between Voluntary and Forced Repossession: While both lead to homeowners losing their property, voluntary repossession is a proactive choice made by the homeowner, unlike forced repossession, which is initiated solely by the lender.
- Seek Expert Advice: Always consult with UK-based charities or debt management firms for free advice to discern if voluntary repossession aligns with your situation.
