Managing Property Repossession: Strategies For Resolving Disputes In The UK

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Repossession, also known as foreclosure, is the legal process by which a lender takes possession of a property when the borrower defaults on their mortgage or loan payments. In the UK, around 20,000 homes are repossessed each year, often due to financial hardship such as job loss, relationship breakdown, illness or inability to pay the mortgage.

Repossession can be an emotional and stressful experience for all parties involved. For lenders, it should always be an option of last resort when all other attempts to resolve the dispute have failed. There are usually alternatives that can help borrowers get back on track with payments and avoid losing their homes.

This article will provide an overview of the repossession process in the UK and outline strategies for resolving disputes over mortgage arrears to reach an agreement that satisfies both parties. It will cover communication, forbearance options, alternative repayment plans, mediation and the court process. Following best practices for managing repossession can help minimise costs and reputational risks for lenders while providing solutions for borrowers in financial difficulty.

The Repossession Process in the UK

In the UK, the legal basis for repossession is governed by the Mortgage Repossessions (Protection of Tenants etc) Act 2010. This protects tenants living in rented properties being repossessed.

When a borrower falls into arrears, the lender will initially attempt to make contact to discuss reasons for non-payment and agree on a resolution. If the borrower cannot afford the full monthly payments, the lender may offer forbearance such as payment holidays or extending the mortgage term.

If there is no resolution after around 3 months of missed payments, the lender can begin legal proceedings by applying to the County Court for a possession order. The borrower will be sent a Notice of Legal Proceedings. At court, a judge will review evidence from both parties and can either grant or dismiss the possession order.

If granted, the borrower has 28 days to voluntarily leave the property before the lender can apply for an eviction warrant from the court bailiffs. The property is then repossessed between 1-3 months from the date of the warrant.

Communication Strategies

Open and compassionate communication between lender and borrower is key throughout the process. Lenders should:

  • Make early contact at first signs of difficulty making payments
  • Listen carefully to understand the borrower’s circumstances
  • Explain the process clearly at each stage
  • Outline available assistance options
  • Provide contact details for free debt advice services

Borrowers should:

  • Respond promptly to all communications from the lender
  • Explain their financial situation openly and honestly
  • Provide evidence of hardship if requesting forbearance
  • Seek help early on from debt charities like StepChange

Clear communication allows both sides to negotiate an agreement and protect the asset. It also minimises costs for lenders from unnecessarily progressing repossession actions.

Forbearance and Alternative Repayment Options

If a borrower is facing temporary difficulties meeting mortgage payments, lenders should first consider alternative arrangements to avoid repossession:

Payment holidays

  • Temporarily suspending payments for an agreed period, adding them to the mortgage balance.
  • Usually offered for 1-3 months but can be extended up to 6 months.

Extending the mortgage term

  • Increasing the repayment period to lower monthly payments.
  • Needs to be within lending criteria for the borrower’s age.

Switching to interest-only payments

  • Paying just the interest each month for a set time to reduce outgoings.
  • The principal balance remains so not a long-term solution.

Reduced monthly payments

  • Agreeing lower payments throughout difficulty, balanced at a later date.
  • Shows willingness from the borrower to repay.

Partial possession order

  • Allows the borrower to remain in the property as a tenant paying an agreed affordable rent.
  • The lender takes possession but the borrower has time to improve their situation.

These options allow borrowers to get back on track while lenders avoid the costs and delays of a full repossession. Clear guidelines help agents offer appropriate forbearance measures based on individual circumstances.

Arranging Alternative Repayment Plans

If forbearance options are unaffordable long-term, alternative repayment plans should be considered:

Capitalisation of arrears

  • Adding missed payments to the loan balance.
  • Increases monthly payments so may require extended term.

Fixed payment increases

  • Stepped increases over an agreed period to clear arrears.
  • Shows commitment but needs to be realistically affordable.

Lump sum payment

  • Borrower uses savings or secured loan to repay part of arrears.
  • Clears part of the shortfall quickly.

Mortgage term extension

  • Extending the repayment period via a formal loan modification.
  • Reduces monthly payments to affordable levels.

Switching mortgage product

  • Changing to a lower rate deal to reduce payments.
  • Criteria may exclude those in arrears.

Careful assessment ensures options match the borrower’s financial situation. This provides workable solutions while recovering unpaid balances in a managed timeline.

Mediation Services

If the lender and borrower cannot agree on a resolution directly, professional mediation can provide an impartial facilitated discussion. Some options include:

Mortgage Resolution Service

  • Free service from Citizens Advice offering mediation for mortgage arrears cases.
  • Aims to negotiate affordable repayments before court proceedings.

HOPE Project

  • Partnership between Shelter Cymru and Citizens Advice in Wales.
  • Independent housing advisers work towards agreements on repayments.

Commercial mediation services

  • Paid services from trained mediators independent of either party.
  • The mediator helps both sides negotiate a suitable way forward.

Mediation is a constructive approach before escalating to an expensive court process. Many cases reach amicable solutions through compromise and clear communication facilitated by a neutral third party.

The Court Process for Possession Orders

If all efforts to resolve the dispute fail, the lender can apply to the court for a possession order to repossess the property. The process involves:

Issuing a claim

  • The lender starts legal proceedings by completing an N5B form with claim details.
  • The court sends a Notice of Legal Proceedings to the borrower.

Attending the hearing

  • Both parties attend and present evidence to the judge.
  • The judge considers arguments and makes a possession order decision.

Leaving the property

  • If a possession order is granted, the borrower has 28 days to voluntarily leave.
  • After 28 days, bailiffs enforce the order if needed.

Regaining possession

  • From the bailiff warrant date, the property is legally repossessed within 1-3 months.
  • The lender changes locks and prepares a sale.

Court claims should always be the last resort option. Contested hearings have risks and costs for lenders. Where possible, agreement outside the court is preferable.

Conclusion

Repossession can be distressing but there are ways to manage disputes effectively at each stage of the process. Lenders should follow best practices like early contact, compassionate communication, offering forbearance arrangements and mediation alternatives before pursuing court orders. This upholds their duty of care to borrowers facing hardship while recovering monies owed and protecting assets. When repossession is unavoidable, conducting it professionally and sensitively minimises reputational risks. A focus on fair resolution provides positive outcomes for all parties.

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