Rising interest rates have dominated the headlines recently, with the Bank of England estimating a million households could see their monthly mortgage repayments increase by £500 over the next three years. If you are affected, you may even be thinking about giving up your property so you will no longer have the burden of a mortgage.
‘Becoming mortgage-free would certainly help ease any immediate financial pressures,’ agrees Chloe Drury, a Commercial and Residential Conveyancing Assistant at Bradford and Son. ‘Unfortunately, that process is rarely easy or straightforward and, whether you are already at risk of losing your home or just want to reduce your outgoings, it is important to get the right advice first.’
Your liability may not end with your ownership
Some borrowers believe they can get out of a mortgage by simply handing the keys back to their lender. However, this is a misunderstanding. You can still be liable for the debt even after you no longer have any interest in the property.
To understand this, it can help to think of your mortgage in two parts. First, there is the money your lender advances you to buy your home. The mortgage, or loan, agreement deals with this. This is a type of contract, setting out your obligations as borrower, such as the payments you must make. In addition, your lender will take a charge over your home as security for their advance, and any other sums which you may owe them, such as interest.
Ultimately, the charge gives the lender the right to sell your home if you default under the loan agreement. This process is often loosely referred to as ‘repossession’. When the lender sells your home, their charge will usually be released. However, your liability under the loan agreement will continue until all the money you owe is repaid. Property prices have been falling, and if the net sale proceeds are less than you owe the lender then they can pursue you for the shortfall.
What happens when a lender sells my property?
If your lender repossesses your property, they should sell it for the best price reasonably obtainable. Often, this will be through an estate agent, but they may choose to auction the property instead. However, their duty is only to take reasonable care. This means they may agree a price lower than you think the property is worth. In general, an unoccupied property in what is known as a ‘distress sale’ is likely to achieve less than a sale by an owner-occupier.
Your lender must send you the net proceeds of sale, if there is any surplus after repayment of your mortgage and their expenses. If there is a shortfall, you will need to discuss with them how you will repay it.
Selling your property before your lender repossesses
It is usually better to sell your home yourself, and repay your mortgage directly, than to wait for your lender to repossess it. Selling voluntarily gives you more control over the process. You should know at the outset how much money you will have after paying off your mortgage. This should also limit the impact on your credit rating, which could affect your future ability to get a loan. Everybody’s circumstances are different, so it is important to take independent advice.
If the sale proceeds will be insufficient to repay your mortgage, you will need your lender’s agreement to the sale. Most lenders will look upon requests sympathetically if you involve them early on. If your lender unreasonably refuses your request, you may be able to apply to court for an order for sale.
Review your finances carefully
If you are struggling to pay your mortgage it is important to get the right advice. Lenders will want to avoid repossession where possible, so contact yours early on. They may be able to offer ways to help, such as switching to an interest-only mortgage or extending your term. You can also find sources of free debt advice at https://www.gov.uk/debt-advice.
Alternatively, you may just want to reduce the cost of borrowing by downsizing or selling a second home or investment property. However, you should still ensure your figures stack up and take advice from the relevant experts. To start with, you will need a realistic estimate of the price your property is likely to sell for, together with the sum required to clear your outstanding mortgage and all the associated sale costs. Your lender should be able to give you a redemption statement. This will tell you how much you need to pay off your mortgage, while our solicitors can give you an indication of the sale costs. If you are planning to save money by downsizing or moving to a cheaper area, you will also need to work out your acquisition costs.
Only when you have this information can you assess whether your plans are viable.
Selling to a cash home buyer
You may have seen advertisements from companies offering to buy properties for cash. The offer of ready money can be very tempting. However, these companies are unregulated, and it is important to ensure any you deal with are reputable. Even if they are genuine, the price they offer is likely to be below market value.
If you are considering such an offer, speak to our solicitors first. We know the local market and can check out the paperwork to ensure the offer is genuine and that there are no hidden pitfalls.
Making sure your property is ready to sell quickly
A quick sale is especially important if you are under pressure to reduce your financial commitments, as each day you will be paying interest on your outstanding mortgage.
Fortunately, there are several things you can do to progress your sale. Making sure your property is presentable and competitively priced should help attract buyers. Before accepting an offer, consider how quickly the buyer can complete. You may prefer a cash buyer for this reason, but your estate agent should always check their credentials by asking for proof of funding.
Speak to our solicitors as soon as possible, so that they can review your position and alert you to any concerns before problems arise. They will help ensure your property is ready for sale legally. This can involve remedying any defects in advance, for example, by taking out a title insurance policy for a breach of planning permission or another restriction.
As part of the conveyancing process, your buyer will also require a lot of information about your property. So, it is a good idea to collate as much of this as possible in advance. Your solicitor can tell you what is required and give you an idea of the likely timescales.
How we can help you
Being under financial pressure is tough enough without the additional stress of having to sell your home. While we may not be able to solve all your problems, our experienced conveyancers understand the need to move quickly and to ensure your sale proceeds smoothly. The process may, at times, feel emotionally draining, but we will always make it our priority to keep you informed and to address your concerns.
For further information, please contact either Katie Auburn, Chloe Drury or any member of our residential conveyancing team on 01709 377 412 or email info@bradfordandson.co.uk.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.