The four horsemen of the housing apocalypse

We reveal the `four Ds' of housing disaster -- and how to avoid them!

The Greek word 'apocalypse' means 'lifting of the veil' -- that is, when something hidden is revealed. It's also the name given to the Book of Revelation, the last book of the Bible. These days, 'the Apocalypse' refers to the end of the world, when four horsemen -- Conquest, War, Famine, and Death -- rain death and destruction on the earth.

Being on Richard Dawkins' side in the religion-versus-science debate, and recognising that the end of the world has been incorrectly foretold for millennia, I'm don't worry about Judgement Day. Instead, my worries are much more mundane, such as how to take care of my family, earn a living, and pay my household bills.

Of course, it's crucial to recognise, identify and plan ahead for life's little letdowns. This is particularly important if you are a homeowner as, in the words of the wealth warning, "Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it."

As proof, the Council of Mortgage Lenders (CML) last week revealed that 40,000 homes were repossessed last year, evicting around 100,000 people from their home. This is the highest number since 1996, putting repossessions at a twelve-year high. Even worse, the CML expects 75,000 property seizures to occur in 2009. What's more, this figure would be close to the all-time record of 75,500 recorded in 1991, as you can see from the table below:

Mortgage repossessions, 1988 to 2008

Then again, it's worth putting these property seizures into context. There are 11.67 million mortgages in the UK, so the 40,000 repossessions in 2008 equates to 1 in 292 homes. So, despite having a home loan for 25 years or more, the vast majority of us will never experience this threat. Nevertheless, the risk of losing your home is real, especially if you don't take steps to prevent Lady Luck from laying you low. Here are 'four Ds' which could spell housing disaster, in alphabetical order:

•1.    Death

The big snag with dying is that, while it happens to all of us, it's impossible to predict exactly when the final bar will come down. A man of forty can reasonably expect to live into his late seventies, but there's no saying exactly when his big day will come.

That's why life insurance is a must if you have a family or partner who relies on you for financial support. The simplest way to ward off the financial consequences of an early death is to buy cheap, simple, effective term insurance and keep an up-to-date Will. However, it's all too easy to buy the wrong policy, so read the five tips in Life's Greatest Question.

•2.    Debt

According to mortgage-counselling firm White Horse Mortgage Services (WHMS), almost three-tenths (29.8%) of mortgage arrears in 2008 were caused by over-indebtedness and financial mismanagement. Often, it isn't a home-buyer loan, but a second mortgage, secured loan or other debts which brings down a borrower. Therefore, the key thing to do is to pay your bills in order of priority: use the acronym THEM FIRST and read these Eight Dealing With Debt Tips.

•3.    Disability

An accident, sickness or injury can easily knock your finances for six, especially if you are off work for weeks or months. This situation is made much worse if are self-employed or don't have generous sickness pay from your employer.

Again, insurance can ride to the rescue here, in the form of income protection (long-term sickness cover) or payment protection insurance (to pay your mortgage or other personal debts). However, premiums and benefits vary widely, so buying these policies without first doing your homework and shopping around is a big mistake.

Likewise, a decent savings safety-net will help keep your head above water. Generally speaking, I recommend keeping six to twelve months of living expenses in a Best Buy easy-access savings account. Those people with generous employers and secure jobs may drop down to three months' expenses, but I wouldn't be comfortable sailing this close to the wind.

•4.    Divorce

Divorce, separation or relationship breakdown can also throw a spanner in your financial works. According to WHMS, personal circumstances -- including relationship breakdown and ill health -- accounted for almost a fifth (19.7%) of mortgage arrears last year. This situation becomes particularly acute if the higher-earning partner or main breadwinner (usually the male) leaves and then fails to contribute sufficient funds toward the upkeep of the family home.

On the other hand, the divorce rate tends to fall during recessions, as couples realise that financial constraints prevent them from living apart. Hence, this may be a welcome and unexpected consequence of the credit crunch!

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