Tackling the threat of repossession

We're facing a greater threat than ever of repossession. Here's what you can do about it.

The Financial Services Authority (FSA) says that not all mortgage lenders have a fair system in place for dealing with people in arrears. It said that lenders will suffer 'meaningful consequences' if this doesn't change. The reason for this is that it appears some lenders are rushing to repossess houses without trying other solutions first.

Latest data from the watchdog shows there was a 68% jump in repossessions in 2008, with 46,750 properties repossessed last year compared to just 27,900 in 2007.

Some legal-services providers are now saying that the FSA is making lenders look beyond the terms in their contracts with customers. It could be, then, that the FSA is setting itself up for a big legal battle. It all looks a bit messy so, rather than rely on the FSA, why don't you read my tips on avoiding repossession:

Check your benefits and insurance

If you're a low earner, ensure you're getting all the benefits you're entitled to.

If the cause of your difficulties is accident, sickness or unemployment, check to see if you have an insurance policy that'll help you. This may be an insurance you bought with the mortgage, with life insurance, or by itself.

Get independent guidance

There are dozens of resources and organisations that are for debtors, offering services of varying quality and respectability. I've read huge amounts of feedback on all of them over the years, but here are three in particular that I would recommend:

1. Get personalised money-saving tips by writing all your monthly expenses in a list and 'posting' (putting) them on the Dealing with Debt discussion board (which you can do anonymously) on our sister site The Motley Fool. Lots of experienced money savers, debtors and debt specialists will give you all sorts of ideas to reduce your bills.

2. National Debtline (England, Wales and Scotland) is another great, free organisation to contact for debt guidance. Even if you don't feel you're 'in debt', if you're beginning to struggle it's worth giving them a call to go through your finances and find a way to improve them. I've received a lot of feedback about this charity, all of it either positive or very positive.

3. The charity Shelter (England) knows a great deal about avoiding repossession. Give it a try.

All three of those resources should be able to advise you on various mortgage rescue and home-owner support schemes, which provide Government help to a small number of homeowners. You'll be lucky if a scheme applies to you, but it's worth asking anyway.

Pay your priority bills first

You want to pay first the bills that, if left unpaid, could leave you homeless, car-less, electricity-less, cold or in prison. If you can afford to pay these, you'll probably have some extra breathing room. I wrote about the bills you should pay first in Eight dealing with debt tips.

Contact your lender

It may be hard to believe, but I assure you it really is best to write to your lender (not just your financial adviser) as soon as you start having difficulties.

If you've already missed mortgage payments, contact the lender now. If you look like you're trying to deal with the problem rather than hiding from it, the lender is more likely to agree some sort of solution. Here are some possibilities:

• If you've missed payments but feel that now you can afford them, you could ask the lender to add the arrears to the outstanding mortgage, rather like re-mortgaging.
• If you think you still can't afford repayments, you should next consider asking your lender to waive the fee for switching temporarily to an interest-only mortgage.
• If the lender doesn't like that idea, you could ask to make reduced payments until your circumstances improve. The lender will want to be able to see that your circumstances will improve.
• Finally, you could ask it to reduce the monthly payments by increasing the length of the loan. (You could reduce the length again when your circumstances improve.)

You should not consider these to be long-term solutions. (The lender certainly won't.) Each one of these will increase the total cost of your mortgage, particularly if you remain on interest-only for a long time or if you permanently increase the term of your mortgage. If you can reduce your other outgoings instead, that's a much cheaper solution.

Complain

If you feel you're not being treated fairly and as an individual, and that the action your lender is taking is too harsh, complain in writing. Don't be aggressive, but explain why you think it's unfair and propose of how you'd like to repay them.

If that doesn't work, ask them for a letter confirming that they will not change their minds. When you receive that (or if they don't answer within a reasonable period) complain to the Financial Ombudsman Service. Not only is the Ombudsman free, but it's effective. It is also a sub-department of the FSA, so it'll have the FSA's views on its mind.

The Ombudsman can order the lender to treat you more fairly and even to give you compensation if it's caused you undue distress.

> Read Go bankrupt for less and Five top ways to clear your debt.

Comments are not gone forever!

We've had to take article comments down temporarily as we set up our new home on lovemoney.com, but new comment tools (and your old comments) will be back soon.