If you’re thinking about handing your keys of your house back to your bank and going for a voluntary repossession, and you live in the UK, this article is for you. But at the outset, I want you to think carefully about what you’re about to do. There are alternatives to repossession.
What happens when you voluntarily surrender your house?
If you want your house to be repossessed. If you want to enter into a formal agreement with your mortgage lender for a voluntary surrender or repossession of your house, you need to think again.
In a voluntary repossession you sign over the ownership of your home to your lender. Your lender will then sell your property and will pay off your debt from the proceeds they receive. But there could be a shortfall on what you owe. Plus this process will badly affect your credit report.
I want my house to be repossessed UK
Let me first deal with what some home owners who are in financial difficulty ask. Which is “I want my house to be repossessed UK.”
This is actually what’s referred to as a voluntary repossession. Be warned though, just because it’s voluntary, doesn’t mean that it’s a good thing.
What is voluntary repossession in the UK?
The process of a voluntary repossession begins by stopping your mortgage payments. The next step is to move out of your property and then to voluntarily hand the keys back to your mortgage company.
If you find yourself in this terrible position where you are no longer able to afford your monthly mortgage payments. Also, if you can’t sell your home for what you owe because you have negative equity on your home. A voluntary repossession is one alternative, but it’s not the best solution.
Whether it’s a voluntary repossession or a forced repossession process, both are bad and should be avoided at all costs. There are many other solutions to solve this financial problem.
Possibly the only benefit of a voluntary repossession is that you can to a degree manage the process on your own terms. But you will need to find alternative accommodation, which is likely to be a rented house.
However, be careful that you may even find this a challenge. Your credit report may have already be adversely affected by falling behind on your mortgage payments. This can affect your ability to pass the credit checks done by letting agents.
More Reading: What Is Negative Equity (Negative Equity Example)
Does a voluntary repossession affect credit?
You may be asking how much does a voluntary repossession affect your credit in the UK?
Simply because you voluntarily surrender your home to your mortgage lender in order to walk away from your mortgage, doesn’t mean your credit report isn’t affected.
Your credit report will be adversely affected by a voluntary repossession. Just like it is by going through a forced repossession. This will affect your credit going forward. It will make it more difficult for you to obtain credit. You may also need to declare it on forms for insurance and such like too.
Obtaining a mortgage in the future will also be more difficult too.
More Reading: If my house is repossessed can I get another mortgage
Is voluntary surrender of your home better than repossession UK
It could be argued that psychologically a voluntary repossession is far better than a forced repossession by your mortgage lender. They will both affect you, but because you’re in ‘control’ of a voluntary surrender, you won’t feel quite so out of control.
However, as already mentioned, a voluntary repossession will affect your credit report just as much. Plus you’ll find out that you could still end up owing your mortgage lender after they’ve sold your property.
How do you give a house back to the bank?
To give your house back to the bank should begin with a phone call to them. Ask to speak to a mortgage loan officer and tell them about your financial difficulties. Preferably make this call before you fall behind on your mortgage payments.
Once you have spoken to your mortgage lender, you’ll need to arrange for the keys to be given to them. You will then need to move out so your lender can sell your property.
What happens if you give your house back to the bank?
All UK mortgages are what’s call recourse loans. With a recourse loan the lender can keep chasing you for any money you still owe them. This is even the case after they have repossessed your home and possibly sold it at a loss.
Your lender can sell your house for less than the mortgage amount owed. They can come after you for all the rest, plus fees and legal costs.
This is still the case even in a voluntary surrender of your home to the bank.
You may still be liable for the mortgage debt shortfall
As already mentioned, just because you enter into a voluntary repossession, this doesn’t necessarily mean you can walk away from the debt. If your mortgage lender sells your house for less than what you owe, which is highly likely if you’re in negative equity, you could still owe money to your mortgage lender.
As a part of the voluntary surrender, you’ll have to complete and sign a voluntary surrender form. This form will include a confirmation that you will remain liable for any mortgage shortfall after the mortgage lender sells the property.
Your home will be sold for less than fair market value
If you don’t already know this, mortgage companies are not in the business of owning and selling properties. This means they will want to get your property sold as quickly and easily as possible.
The result of this is that your home will probably be sold at under market value. This can sometimes be as much as 25% under market value. Mortgage lenders tend to sell repossessed homes through auctions. Whilst the bank will place a reserve at the auction, this will be lower than an level you may be happy with.
After they sell your house for let’s say 75% of its fair market value. And after they deduct their selling commission and legal fees, it’s only what’s left that will be used to repay what you owe.
Of course even if you have equity in your house, unless it’s sufficiently more than the discounted sale price the bank receives for the sale of your house, and after they’ve deducted the legal fees and auction cost, you may still end up owing money to your mortgage lender.
Your mortgage lender can and may come after you for this shortfall.
The alternative solution to a voluntary repossession
There is an alternative solution to requesting a voluntary repossession. This is to speak with us about your problem. Even if you are in negative equity, we can still find a solution that will work for you. We can act fast and the solution we offer is 100 times better than going through any form of repossession.
If you work with us, we can stop your home from being repossessed. We can even help you with your first month’s rent and deposit.
But more importantly, with the solution we offer, which prevents you from taking up a voluntary repossession, your mortgage lender won’t be chasing you for the debt. We will take over your mortgage payments and will take care of any arrears you owe.
This will all be agreed as a part of the arrangement between us. It will also be prepared and executed by solicitors. Plus you’ll be represented by your own solicitor too.
Depending on your circumstances, the value of your home and where you live, will depend on the solution we can structure for you.
But we are usually able to work with most, if not all people in financial stress.
I hope you’ve got something from reading this article on “I want my house to be repossessed“
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