Guide to Mortgage Arrears and Property Repossession

People in todays society will have differing attitudes to debt and debt repayment. There will always be those individuals who take a very relaxed attitude to debt and debt repayment, however the vast majority will take the matter very seriously and in the case of property ownership, they will take any realistic action to make their mortgage repayments on time.

Unfortunately there will always be situations out of the control of even the most conscientious borrower. Individuals fall into arrears on their mortgage for many different reasons; accident or sickness, redundancy or unemployment, death of a spouse, insolvency or hikes in mortgage interest rates to name just a few. The most common reason for property repossession in current times can be attributed to general high levels of consumer debt. This comes in two forms, secured and unsecured debt. Whether this is due to the borrower making payments on their unsecured debts in priority over their mortgage or a level of mortgage borrowing taken out which their income cannot afford. But how can a few missed payments on the mortgage lead to property repossession? Very rarely will a property be repossessed over
an isolated incident of a couple of missed payments. The advice given to borrowers who fall behind on their mortgage repayments is to contact their lender at the earliest possible opportunity. Speedy action on the part of the borrower can often reduce the potential arrears and put them on the road to recovery. Delaying action is likely to result in increased mortgage arrears and ultimately could lead to property repossession.

Borrowers have a number of options available to them in the early stages of mortgage arrears. These will include: * Capitalising the arrears;

Paying the mortgage on an interest only basis for an agreed period. Of course this will only be an option open to those paying the mortgage on a repayment basis.

Increasing the term of the mortgage. This will take the effect of reducing the monthly payments, thus making them more affordable;

This could allow the borrower to use the cash raised to settle the arrears.

This of course is not always a viable option as it is dependant on the seller finding a buyer for the property and so on; * Surrendering an investment policy, such as an endowment or an ISA attached to the mortgage. Surrendering such policies will usually result in a significant loss to the investor as very rarely will he or she receive the full value of the policy.

Consideration must then be given as to how the mortgage will be repaid at the end of the term with no repayment vehicle; But what happens if an agreement with a lender cannot be made, or a solution found to clearing the arrears? Handing
back the keys to the lender is rarely a good idea. The borrower will still be responsible for paying the mortgage until the lender has sold the property.
This will lead to more arrears and arrears charges being made. It must also be understood that prices obtained for repossessed properties will usually
less than the market value. The lenders primary aim in this case is to sell the property as quickly as possible in order to recoup their funds. If an arrangement is not made and the arrears situation escalates then it is highly likely that the lender will seek a legal remedy through the County Courts.

The borrower will first be notified of this through a letter from the lenders solicitor. In order for the lender to take possession of a property, it is first
necessary to petition the County Court for a possession order. The borrower will usually receive a court date for the hearing. Before the County Court will even consider granting a possession order it first has to be satisfied that every avenue has been explored by the lender and borrower.

The County Court will take the view that possession should be the very last resort. The County Court may take one of three course of action: * It can grant an outright possession order. This will enable the lender to take possession of the property which will usually happen within 28 days;

This will place an obligation on the borrower to make payments in accordance with the courts decision, with the suspended possession order enforceable if the borrower fails to keep up the repayments. * It can adjourn the case until a later time.

Once a possession order has been granted the court will also decide a date on which this order is enforceable.

The lender can then take steps to take possession of the property. Once the lender has obtained vacant possession of the property, they will then follow there possession procedures which will include; changing the locks, disconnecting utility services, taking gas and electric meters and informing the local police of the possession.

Even after the property repossession, the borrower can still redeem the mortgage up until the point of sale.

This can sometimes happen if the borrower has been organising a remortgage during this process.

In the event of the lender losing money on the proceeds of the sale, it may take further action if it believes the borrower has the financial means to make good the loss.

What is a traded endowment policy TEP

A traded endowment policy TEP is an endowment policy that the original policyholder has sold by absolute assignment of all future benefits. "Traded endowment policy" is merely a fancy way of saying second-hand endowment policy. Endowment policies are long-term and relatively inflexible by their nature. Many people have found that these policies do not suit changing financial needs or circumstances. If you took out a 25-year policy but after say 15 years decide you no longer needwant the long-term savings plan or it has not performed as you expected you have a number of options Selling to a third party in the second-hand market - the TEP marketMaking the policy paid-upBorrowing against the policySurrendering the policy to the life assurance company you purchased it from For a variety of reasons many policyholders cash in their policies early. According to the Association of Policy Market Makers only around 30 of all endowment policies actually reach maturity. A further 30 are cancelled in the first few years of their intended lifespan. The 40 that neither last the full term nor get cancelled are either sold or surrendered somewhere along the way. Why would I sell my policy rather than surrender it For the obvious reason! You may have decided for whatever reason that your endowment policy is no longer relevant to your financial circumstances. It follows logically that you will therefore want to get as big a return from your investment into the endowment policy as you possibly can. First you should approach your life assurance company to find out how much the policy will be worth if you surrender it. This "surrender value" may or may not be more than you have actually paid in to the policy. Indeed you may be unpleasantly surprised by how low this is. Endowment policies generally take approximately 5-7 years before their cash-in values match and then exceed the amounts of money invested although this performance cannot be guaranteed. You may well be familiar with the press coverage about why this is so - commissions to the sales people administration charges fund management costs etc. The key point is that long-term contracts rarely offer especially attractive short-term encashment values. This is where the traded endowment policy TEP market may help. There may be a substantial difference between a quoted surrender value and a policys underlying worth if held to maturity. Through the TEP market policyholders may be able to sell unwanted policies and buyers with the initial capital to invest and the income to meet future regular premium commitments may buy them mid-term with entitlement to all the potential future benefits. Why would my endowment policy be worth more in a sale Surrendering a policy is unlikely to produce a return reflecting the policys full potential value if only because the terminal bonus paid on maturity while not guaranteed usually represents a large chunk of the policys return. In fact policies surrendered early may not even reflect the full value of funds invested owing to high initial charges. The reason the traded endowment policy market exists is because surrender values do not always reflect the full potential inherent worth of policies as long-term continuing contracts. Analysis for the Association of British Insurers by Tillinghast-Towers Perrin in 2002 showed that the charges the reduction in yield on a mortgage endowment policy held for 25 years were equivalent to an average of 1.5 of the value of the policy. However if the policy is cashed in after three years the charges on it represent almost a third of the policys value on average. The alternative option if the policy is suitable is sale through a market-maker or the auctioning of the policy through an auctioneer. In either case the policyholder is likely to realize a higher cash sum than through surrender. The Association of Policy Market Makers admits that surrender values may not always be beaten but where they are policyholders realise an average of 10-15 in excess of surrender value. Will somebody want to buy my endowment policy Most saleable policies must be traditional with-profits type endowments or whole of life contracts issued by major UK life assurance companies which have already run for at least five yearsand have a surrender value of at least £1500 Anyone wanting to sell a policy - or at least get a quote for what might be on offer - needs to provide the following information or give written authority for the market maker to obtain these details from the life company the name of the life company and the policy numberthe name of the life assured youcommencement and intended maturity datesthe "basic sum assured"gross regular premiumsquoted surrender value at a recent dateamounts of attaching annual bonuses at the same date On receipt of all the relevant details an offer to purchase or a reason why the policy is not suitable will usually be made within a couple of days. Payment will normally take a few weeks to account for all the paperwork and exchange-of-ownership declarations that have to be completed between the market maker and the original insurer. Policies sold or auctioned are assigned to the investors who purchase them and who then take on the responsibility for the payment of future premiums. When the policy reaches maturity or the life assured dies all the benefits are paid to the investor owning the policy. Do I face a tax bill if I sell my endowment policy If you are the original beneficial owner of the policy that is to say if you were the person who took it out unless you are a higher rate taxpayer there is generally no tax liability on the proceeds of the sale or auction of the policy. As you may be aware income tax will already have been paid on any dividend income generated by the policys equity investments. When you sell a policy that you originally took out and have paid premiums for at least ten years or at least three quarters of the policy if sooner you should have no income tax liability irrespective of your tax rate and nor will you be liable to Capital Gains Tax. Does a traded endowment policy make sense as an investment Why would anyone want to buy anyone elses unwanted endowment policy Surely they are selling the policy because it has underperformed or is in some other way unsuitable. Either or both may be true. That does not mean that a traded endowment policy TEP does not make sense as an investment to others. TEPs may not sound exciting but for thinking investors they may be ideal vehicles for building capital to meet future financial needs or obligations at a fixed time in the future. They may be used to provide future lump sums tailored to specific needs. Popular uses - albeit not exclusive - include 18th or 21st birthdays school or university fees and general savings as part of a wider portfolio of investments. TEPs appeal is based on the fact that they are backed by the strength and proven performance of leading UK life assurance companies with exposure to a broad range of asset classes and in theory offer steady and stable growth prospects. TEPs ideally suit investors who are looking for a combination of relative safety and security together with growth potential although due to their exposure to the performance of the equity market they may not get back the full value of their investment. Such investors are often wary of investing directly in stocks and shares or other equity-linked vehicles such as unit trusts investment trusts and OIECs. In most circumstances TEP investors can rest safe in the knowledge that they cannot lose any of their initial investment provided they continue to pay the remaining due premiums and keep the policy in force until its stated maturity date. This is because the basic "sum assured" and annual bonuses allocated by the time of purchase are guaranteed - i.e. "locked in" and together are likely to be worth more than the initial purchase price. In addition the expenses incurred in the early years commission and other costs have been absorbed already by the original policyholder. Whats the tax situation for TEP investors A traded endowment policy TEP can be regarded as an asset just like any other investment and may therefore be potentially subject to Capital Gains Tax CGT on profits made over the period it is held. However the tax situation with TEPs can be more complex than this. There are two different classes of TEP for tax purposes qualifying and non-qualifying. Non-qualifying means the policy has not been certified by the Inland Revenue to benefit from specific income tax exemption. Qualifying TEP proceeds whether at maturity death of the life assured or resale of the policy are normally liable to CGT. However depending on your individual tax circumstances if a non-qualifying TEP is chosen to meet your requirements you may be liable to income tax on the proceeds instead of CGT. Furthermore if you hold a qualifying policy and sell it within 10 years or three quarters of its term it will no longer be classed as a qualifying policy and may therefore give rise to tax liability. If you hold a qualifying TEP CGT is payable on any capital gain - the maturity value less purchase cost and premiums paid since purchase. Your CGT liability may be mitigated by taper relief on TEPs purchased after 5 April 1998 and by your annual CGT allowance. Non-qualifying TEPs are taxed under income tax rules and are subject to top-slicing relief. The chargeable gain is calculated by deducting total premiums paid including those of the original policyholder from the maturity value. Higher rate taxpayers will then face tax on the amount of chargeable gain at the difference between higher and basic rates of taax 18 in 2007 08. For basic rate taxpayers the chargeable gain is divided by the number of whole years the policy has run. This figure is the top-slice. The top-slice is then added to all other taxable income received in the same tax year. If total income including the top-slice is below the higher rate tax threshold no tax is payable. However if the addition of the top-slice takes the taxpayer above the higher rate threshold then the proportion of the slice falling over the threshold is applied to the total chargeable gain and this amount is subject to income tax at the difference between basic and higher rates.

What Is Endowment Policy?

Endowment policies cover the risk for a specified period at the end of which the sum assured is paid back to the policyholder along with all the bonus accumulated during the term of the policy.

It is this feature - the payment of the endowment to the policyholder upon the completion of the policy’s term - which rightly accounts for the popularity of endowment policies.

Typically, one’s responsibility for the financial protection of the family reduces significantly once the children are grown up and independently settled.

The focus then shifts to managing a smaller family - perhaps only oneself and one’s spouse - after retirement.

This is where the endowment - the original sum assured and the accumulated bonus - received back comes handy.

You can either use the endowment amount for buying an annuity policy to generate a monthly pension for the whole life, or put it in any other suitable investment of your choice.

This is the major benefit of an endowment policy over a whole life one.

Do's and Don'ts For Finding a Cheap Loan You Can Rely On

If you see an advertisement for a cheap loan which seems too good to be true, it may well be. Here are some top tips for spotting the potential pitfalls of loan offers and finding the right cheap loan for you.

DO: Compare loans

Lenders often categorise their loan offers as excellent deals, when in fact you could do a lot better if you took the time to compare loans across a range of different providers before choosing one, supposedly 'cheap', loan.

DON'T: Mistake 'typical APR' for a fixed rate or average rate

APR is an acronym for 'annual percentage rate', meaning the interest rate for the whole year. It's easy to make the mistake of assuming the 'typical APR' is the precise interest rate you will pay on your cheap loan. In fact, this term refers to the interest rate offered to at least 66 per cent of applicants for that particular loan. Due to your own personal circumstances and credit history, you may be offered a higher rate than the 'typical APR', or you might not be able to take out the loan you want at all.

DON'T: Ignore the other charges

While the 'typical APR' is a good place to start when searching for cheap loans, there are often other charges involved when taking out a loan, and you also need to consider payment protection insurance. Take all of these things into account when you compare loans and you will get a much clearer picture of what the different lenders are offering.

DO: Check your credit card report

Take a look at your credit card report before embarking on a cheap loan agreement. Your credit card report will reveal how you will look to lenders when applying for a loan. You will also benefit by seeing if there are any errors and correcting them before you make an application. This will give you the best possible chance of being approved for a cheap loan.

DON'T: Be taken in by 'payment holidays'

Sometimes, lenders will offer a 'payment holiday' which allows you to start paying off the loan later, perhaps after three months, instead of having to start making payments straight away. Unless this is really necessary, it tends to be better to turn down this offer, because future repayments will become larger to compensate for this initial holiday, and your total amount payable will also be higher.

DO: Read the small print

Before entering into a loan agreement, you need to know exactly what you are signing up for, and banks are required to tell you all the important terms and conditions. You should read through these carefully and not be afraid to ask as many questions as you need, to help you understand exactly what your 'cheap loan' will mean for you.

DO: Look out for 'delivery charges'

In order to secure your business, certain lenders offer a service where they can send a cheque straight to you by courier, or transfer the loan into your account instantly or by the end of the day. However, this will often mean you have to pay an extra 'delivery charge', so unless you really need the loan immediately it might be better to say 'no' and keep your 'cheap loan' as cheap as possible.