Although in law most lenders have quite wide-ranging powers to lend money as they wish, lenders often say that options for rescheduling the loan are not available, possible or practical. It will be necessary to persevere and show that by the lender reducing the current mortgage costs, for example by rescheduling over a longer term or by altering the level and/or frequency of repayment, it will be possible for the borrower to meet future commitments.
Reduction of repayments
Lenders should be prepared to accept interest-only payments and defer capital repayments within repayment mortgages. This should prevent further arrears accruing providing payments are made, although the lender may require that the unpaid capital elements be paid off when normal repayments are resumed. In relation to regulated mortgage contracts the Financial Services Authority (FSA) requires lenders to deal fairly with any borrower in arrears. Lenders must also operate within their written policy for complying with this obligation. FSA guidance suggests that lenders may wish to defer payment of interest due on a regulated mortgage contract or treat any arrears as if they were part of the original amount borrowed. An unreasonable response to such a request might be found the basis for a complaint to the Financial Ombudsman Service. Many financial institutions are also sensitive to bad press publicity where the lender is obviously acting insensitively.
Where the borrower took out a mortgage protection policy (to pay the mortgage instalments in the event of unemployment or sickness), it is important to lodge the necessary claim form with insurers as soon as possible. Many of these policies set down a very short time-scale within which a claim should be made. Do not, however, be put off lodging the claim after the time specified, as the insurers can extend the time at their discretion. Complaints about insurance policies can be lodged with the Financial Ombudsman Services. Mortgage protection policies are commonly taken out with second mortgages or ‘secured loans’. Payments received under a mortgage protection policy which are used by claimants receiving income support or income-based jobseeker’s allowance claimants to pay housing costs not covered by the Department for Work and Pensions are not treated as the claimant’s income. Similarly payments which these claimants actually receive from other sources (rather than being paid directly by a third party to the lender) and which are actually used to make payments towards a secured loan which does not qualify for assistance under benefit regulations, are ignored unless the claimant has used insurance policy payments for the same purpose.
Extension of Term
In any repayment mortgage case, it may be possible to extend the term of the loan so as to reduce the capital element and thus the amount of the monthly repayment. This option need not be pursued if the lender is prepared to accept interest only for a period. Extending the term of the loan involves entering into a new mortgage arrangement and it may be possible, as part of the process, to have the existing arrears ‘capitalised’, by the lender wiping out the arrears and increasing the outstanding capital by an equivalent amount. In this way the borrower can be given a fresh start. Care, however, should be taken in pre-October 1995 loan cases to try to ensure that the new agreement will not be treated as a post-October 1995 loan in the case of future claims for income support and jobseekers’ allowance.
Again the Financial Services Authority encourages lenders in relation to regulated mortgage contracts to consider extending the term of the regulated mortgage contract.
Changing type of mortgage
In the case of an endowment mortgage, it is worth considering whether there would be a reduction in monthly payments by switching to a repayment mortgage. The amount of interest paid each month would remain the same but the monthly repayments of the capital (over the remainder of the term or over an extended term) may be less than the payments of the life insurance premium. The amount of capital originally borrowed from the lender could be reduced by the surrender or sale value of the life insurance policy. If the life insurance policy has been going for some years, more will be raised by selling the policy to an endowment policy investor. The borrower should contact a reputable insurance broker for details of how the policy could be sold on. It can be difficult to sell policies which have been in existence for only a few years. If the lender agrees to a new loan, mortgage protection policy may have been taken out to cover the possibility of the borrower’s death before the end of the loan term. Where an endowment mortgage borrowed is told by the endowment policy insurance company that the sums likely to be realised at the end of the term of the policy are less than the amount needed to pay off the mortgage loan, the borrower would probably be better advised to negotiate with the lender to make additional payments towards the shortfall, as if those payments were capital repayments, rather than taking out an additional endowment or similar policy cover to pay off the shortfall. Again the Financial Services Authority advice in relation to regulated mortgage contracts is that lenders may wish to consider changing the type of the regulated mortgage contract. Borrowers who have been advised that their endowment policy is unlikely to be enough to pay off the capital borrowed and who feel that they may have been mis-sold the policy should contact the Financial Services Authority.
Re-mortgaging
Where there are two or more mortgages (one of which is likely to be with a ‘fringe’ mortgage company which charges high rates of interest), or even where there is one high interest rate loan, it is worth trying to persuade one of the mainstream lenders (such as bank or building society) to ‘remortgage’ the loan. This involves redemption of the existing loan(s) and replacement with a new mortgage agreement. It is easier to persuade a building society or bank to remortgage the defaulting borrower if, at the time of the new mortgage, the local housing authority agrees to enter into a form of mortgage guarantee which would indemnify the lender in the event of the bank or building society suffering a loss because of the default. It is worth arguing that the lender has in the future nothing to lose, as the money will be recovered either following repossession and sale, or, if there is any shortfall, by the local authority meeting the shortfall under the terms of the guarantee. Extreme caution should be exercised when considering whether to re-mortgage with institutions other than building societies (or other similar lenders) as the terms offered may well be disadvantageous over a period of time. The costs of remortgaging may also be considerable, as they include not only surveyors’ and solicitors’ costs but also the commission charged by the mortgage broker who arranges the re-mortgage. However, it is worth seeking specialist advice from a reputable mortgage broker as lenders are keen to attract new customers, often on initially advantageous terms.
Where a borrower is ‘threatened with homelessness’, ie, it is ‘likely that he will be homeless within 28 days’, it is useful to remind the housing authority of its duty to ‘take reasonable steps to secure that accommodation does not cease to be available for [the borrower’s] occupation’. It is arguable that this duty may extend to requiring the authority to use one or more of its powers in Housing Act 1996 Pt VII to try to prevent dispossession. This duty, however, arises only where the authority is satisfied that the borrower is in priority need and not intentionally threatened with homelessness.
Sell and rent back
Sell and rent back is a relatively new service mainly being offered by individual and collectives of Property Investors. The companies target overstretched homeowners (who have explored all the options mentioned above), particularly those who may be facing the prospect of repossession, and essentially purchase the property and subsequently issue a rental agreement on the property. These services are mainly aimed at those who wish to remain in their home whilst clearing any debts secured against the property.
Pros
- Any maintenance issue with the property will be dealt with quickly by te person who has offered to buy the property;
- The majority of investors and companies offering the Sell and Rent back service can complete the whole transaction in one month;
- Tax free money (via the proceeds of sale, if there is a sufficient amount of equity which can be released) - avoidance of future inheritance tax issues;
- Some companies offer a ‘buy back’ option and will confirm a re-purchase price with you;
- Research has shown that the majority of the companies will cover your legal fees and, as they are buying the house from you – will also pay for the survey;
- You can stay in your house;
- Secured debts will be cleared;
Cons
The property, in the majority, will be bought below the market value – usually anything between 15-25%. So if your house is valued at £100,000 – you will be offered something in the region of £80,000 - £75,000;
You lose ownership of the property and therefore any future gains in its value;
You may have been hoping to pass the property on to you spouse/siblings which will no longer be possible – unless you have come to an arrangement with the new owner whereby you can buy the property back at a later date;
Rent back tenancies are only guaranteed for 6 to 12 months with a months notice (usually under an Assured Shorthold Tenancy – AST –Agreements);
The openness or longevity of the companies operating in it are questionable. In addition to short tenancy, the future of rent charged is unknown.
The majority of companies do not offer long-term rent back agreements (despite saying they do) as the mortgage companies they use do not permit them to do it.
You should bear in mind the following things:
This is a big decision and there are 100s of companies that have emerged recently offering this service – take your time over who you choose. Should you wish to proceed, they will be your landlord, so you must feel comfortable with them;
You may have more time than you think;
Spend some time looking at all the options available and selling-and-renting back should be looked at as the final choice;
Should you still decide to proceed you should be aware that for a Property Investor, entry into the business is relatively easy, compared to, say, becoming a mortgage broker (there is no formal qualification required);
From a consumer point of view, the business is not regulated by the Financial Services Authority (FSA) or the Office of Fair Trading so there may be unscrupulous operators who will be offering this service;
You should check their credentials (you can ask for a Criminal Records Bureau report; bankruptcy check; copy of passport for example)
Some questions you may want to ask the Company that approaches you:
o How reputable is their Sell and Rent back service?
o How long has the company been established?
o Does the Property Investor / Investment Company have a proven track record?
o How long has the company been established?
o Has the investor done this before or can he provide references of people that have used his/her service?
o How experienced is the Investor in doing this kind of transaction?
o How do I know that the rent will be kept reasonably stable?
o How do I know that I’m not going to be chucked out of my home?
o How long with the rental agreement be for?
o Will I be able to buy the property back? (perhaps when you are in a better financial position)
o Can you provide me with a Company Registration Number?
o Should I proceed, how long will the transaction take?
o Are there any hidden charges?
No comments:
Post a Comment