When debts begin to climb, for whatever reason, it can be a daunting time. Hundreds of thousands of people in the UK struggle with their mortgage and often use credit cards to pay their mortgage each month.
If somebody fails to maintain repayments to their mortgage company often the property will be repossessed. The lender will then try and sell the property to recoup their initial investment. After the property is sold the legal fees and repossession costs will be deducted first. The mortgage company will take back the money they lent and any surplus money from the sale of the house will be returned to you.
However, when the property is in negative equity the end result can be slightly different. A mortgage is a secured debt; the money being lent is tied into the property. But after the property is sold, the fees and costs have been paid and the lender receives their money, if the full amount of the secured credit (i.e. the mortgage) is not repaid then the shortfall becomes unsecured. So, if the lender does not receive all of their money back then you would be responsible for the shortfall.
An Example of a Mortgage Shortfall
If you jointly own a property with your partner which has a mortgage of £100,000 and the property is worth £90,000 then there is already negative equity of £10,000. If the property were to be repossessed then the fees and charges may be £5,000. The negative equity would be as follows:
Mortgage outstanding: £100,000
Property sold for: £90,000
Fees and charges: £5,000
Negative equity: £15,000
Important: You jointly own the property with your partner. A common mistake is to think that each person is liable for £7,500. This is inaccurate. Each person is liable for the full £15,000. The most amicable solution is for both parties to pay half however if one person enters bankruptcy, an IVA or Trust Deed then the full amount will revert to the other person.
Tips to avoid a mortgage shortfall
1. Make your mortgage the priority. Your mortgage, food, council tax and fuel are all priority expenditures. If you find that you are paying the minimum balance on all of your credit cards but not paying your mortgage then call Debt Support Trust. You should be paying your priority expenditure before paying any other debts.
2. Budget. A budget can help you understand just how much money you have available each month to contribute towards your debts. Take the debt analyser to complete your budget.
3. Planning. If you feel like your financial problems are taking over your life then creating a plan can often help. If you are struggling month to month to pay your mortgage then understanding where the problem lies can be the toughest part of the task. Always check you are receiving the correct benefits and discounts on things like your council tax, as these can make a difference.
4. Take control. Often the reason people struggle to pay their mortgage is because of a change in circumstances. Perhaps a roommate has moved out and you have to pay all of the bills yourself, which is not possible. Decide how you can make your expenditure meet your income and make decisions ahead of time, with a clear mind.
Debt Help for Mortgage Repossession
If you would like debt help and advice about your property repossession then you can call Debt Support Trust on 0800 085 0226.