Help for residential borrowers struggling with mortgage repayments
What are the borrower’s options ?
The first step for a homeowner in financial difficulties should be to talk to their lender. It may be possible to negotiate a reduction in the monthly mortgage repayment amount, for example by agreeing a payment holiday, switching to an interest only mortgage or extending the mortgage term.
The borrower should focus on meeting their mortgage (and any secured loan) repayments, ahead of any unsecured debts. If the borrower cannot meet the full mortgage repayment, they should pay what they can each month.
The borrower should check whether there is a mortgage payment protection policy in place. If so, this may cover mortgage repayments in the event of unemployment, accident or illness.
If increasing income and/or reducing other outgoings is impossible, the homeowner could consider:
- Selling the home.
- Renting out the property (or renting out a room). This is likely to require the lender’s consent.
- Re-mortgaging or taking out a second mortgage (or secured loan). This is likely to require the existing lender’s consent.
- A sale and rent back scheme.
What can the lender do at this stage ?
There are various sources of protection for borrowers:
Pre-action protocol for mortgage repossession cases
From 19 November 2008, a new pre-action protocol applies to repossession cases relating to the following types of mortgage:
o first charge residential mortgages and home purchase plans regulated by the FSA under the Financial Services and Markets Act 2000;
o second charge residential mortgages and other secured loans on residential property regulated under the Consumer Credit Act 1974; and
o unregulated residential mortgages.
Repossession proceedings stayed for three (or six) months In November 2008, the Government announced that major lenders were committed to waiting a minimum period of three months before initiating repossession action against customers in arrears with mortgage payments. See Legal update, 2008 Pre-Budget Report – implications for Property: Mortgages (www.practicallaw.com/5-384-1845).
In December 2008, some banks, including NatWest and RBS, agreed to double the grace period and to delay taking repossession action for six months.
The borrower should attend any court hearing. Free, on-the-day legal advice and representation is available from advice desks in courts throughout England, to people facing repossession or eviction hearings. In four out of five cases, the court desk advisers stop immediate repossession or eviction.
Protection for residential tenants when landlord’s property is repossessed
If a landlord grants a tenancy of already mortgaged property, without obtaining the lender’s consent, the tenancy is not enforceable against the lender. In 2009, the Government consulted on changing the law to provide increased protection for tenants whose landlords have their properties repossessed
The Government decided to back a Private Member’s Bill, the Mortgage Repossessions (Protection of Tenants etc) Bill, which received Royal Assent on 8 April 2010.
The Mortgage Repossessions (Protection of Tenants etc) Act 2010 (MRPTA 2010):
- Gives courts the power to postpone an order for delivery of possession (and to stay or suspend the execution of a possession order) for up to two months.
- Requires the lender to give notice, at the property, of the proposed execution of the possession order. The details of this procedure are provided by regulations made under section 2 of the MRPTA 2010, which came into force for the purposes of making regulations on 30 June 2010.
The MRPTA 2010 came fully into force on 1 October 2010.
