Is Voluntary Repossession My Best Option?

Home repossessions are increasing. The latest available government data revealed that Q1 of 2024 saw property repossession increase 4% year over year.

Falling into mortgage arrears is now commonplace and voluntary repossession is, for some, the only viable option. In this blog, we take a closer look at voluntary repossession, answer common queries, and provide you with an alternative to stop house repossession.

What is voluntary repossession?

Voluntary repossession is the act of relinquishing your home due to financial difficulties. This differs from the more common involuntary repossession, which is when a lender starts the process of claiming back the property from the borrower due to missed mortgage payments.

Why would you choose voluntary repossession?

As we mentioned above, voluntary repossession is a choice made by the borrower rather than the lender. Typically, this process is started by the homeowner due to a change in personal finances, such as a job loss or illness.

Many homeowners who have considered voluntary repossession were enticed by the possibility of greater control compared to an involuntary repossession. However, voluntary repossession is something to be given a great deal of thought before persuing. Downsides of voluntary repossession can include:

• A negative impact on your credit rating which can squander renting a new home or taking out any type of loan.
• Lack of access to benefits or social housing as the local authority may deem a homeowner to have intentionally become homeless.
• The property may be sold for less and if the sale price does not cover the money owed another debt is created.
• Homeowners are still responsible for the mortgage, building insurance, and maintenance costs until the property is sold.

What happens to your mortgage with voluntary repossession?

Choosing to voluntarily surrender your home will require you to cover mortgage payments until the property sells. This is inevitably going to exacerbate the issue of mortgage arrears. Your lender will sell the property as quickly as possible, and it may go to auction. Typically, properties that are sold at auction sell for less than the market value.

If the final sale value of the property doesn’t cover the outstanding mortgage, legal gees, penalty fees, and any other associated costs, the borrower remains liable. Unless an agreement for this outstanding debt can be found, the lender may take legal action to recoup these fees.

Does voluntary repossession affect your credit?

Mortgage arrears affect your credit score. Whether your home is repossessed involuntarily or voluntarily, your credit score will be impacted. Future lenders will see you as a risk as repossession will remain on your record for at least seven years.

Repossession, voluntary or involuntary, should be a last resort. The best course of action, if possible, is to negotiate with the lender for alternative solutions like refinancing, deferral, or a loan modification.

How does voluntary repossession work?

To initiate the process of voluntary repossession, you would need to follow some steps. The first one being that you have given this a lot of thought and weighed up whether there are alternative options. If there are not, you should start the process as soon as possible to avoid the debt escalating.

Firstly, notify your lender of your wish to surrender the property. This will need to be in writing and should be done at the earliest opportunity.

You’ll then begin the legal paperwork and associated processes. This can take some time and may involve a fair amount of stress, but it is essential to keep the process moving.

Upon completing the legal aspects of surrendering your property, the lender will set a specific date for you to vacate the property and for the keys to be handed back to them. This is not to be ignored!

With keys handed over, the sales process will begin. The funds from the sale contributing towards your debt and hopefully clearing it.

How long does voluntary repossession take?

The timeline from surrender to sale can vary. Much depends on the current market and the complexities of the legal process associated with the property.

As a rough guide, you can expect a month as a minimum for everything to be completed. However, with the current average time being 185 days to sell a property, it would not be surprising to see voluntary repossession take 3 to 6 months in some cases.

How much will voluntary repossession cost me?

Voluntary repossession can lead to significant costs. If the house sale doesn’t cover the mortgage, you’ll still owe the remaining balance, interest, and fees, leaving a substantial financial burden. Legal fees for initiating the process and solicitor checks must also be paid.

Additionally, selling the home involves expenses like estate agent fees, EPCs, and repairs. Lenders often price homes below market value for a quick sale, potentially leaving you with no profit or even a shortfall.

Even if you profit from the sale, Capital Gains Tax may apply if the property wasn’t your primary residence.

Are there alternatives to voluntary repossession?

Before deciding, it’s important to carefully weigh your options, communicate openly with your lender, and seek professional advice to determine the best path forward.

1. Lender assistance
Many lenders offer support to help you avoid repossession. You can negotiate reduced mortgage payments, request a payment holiday, or explore a repayment plan that suits your financial situation. Some lenders may also permit a standard property sale, allowing you to sell the house at market value while avoiding additional fees associated with repossession. This process often requires providing proof of reasonable pricing and granting your lender access to communicate with your estate agent and solicitor.

2. Estate agent support
Estate agents may assist with an assisted voluntary sale, where they actively help you sell the property. This support can include covering selling fees, reducing your mortgage payments, or contributing towards a rental deposit. This option is designed to make the transition smoother and reduce financial strain, though it may not be offered by all lenders or agents.

3. Involuntary repossession
In some cases, involuntary repossession may be a more favourable alternative. While it can have a significant impact on your credit score, it relieves you from the stress of selling the property yourself. The lender takes control of the sale process and manages all associated costs. This option may provide a faster resolution, especially if you are unable to handle the complexities or expenses of selling the property.

4. Fast house sale

At Sell House Fast we have helped homeowners avoid repossession. By buying your property directly from you with our own cash funds, you can sell your home in a timeframe that suits you. Our team are on your side to facilitate a fast property sale, allowing you to avoid further debt and impact on your credit score.

You can secure a no-obligation free cash offer today to start the process. Alternatively, contact the team and discuss your situation honestly and without judgement. We understand that repossession is stressful and Sell House Fast can help you sell your home to alleviate some of the pressure.