Search: Mortgage crisis and the credit crunch
- Current mortgage best buys
- Free debt advice
- Check your credit rating: Free report
Figures from the Council of Mortgage Lenders (CML) show that 46,000 homes were repossessed during 2009 - the highest number since 1995.
The number was lower than the CML had predicted, but this was largely due to a number of Government schemes designed to assist struggling homeowners, and extremely low interest rates.
The fear is that the figure could worsen this year if interest rates rise and the full impact of spending cuts hits public sector employment hard.
So what can homeowners do to get their repayments back on track and avoid the terrifying ordeal of repossession? Here are our top 10 tips:
Hold on to your keys
Don't simply give up and send your keys back, unless you have exhausted every other option. A lender may sell your property but you will still be liable for any shortfall if the debt isn't cleared and repossession is likely to have a serious affect on your credit rating, hurting your chances of gaining another mortgage or even competitive credit cards and loans in the future.
Sit tight - negative equity only affects those who want to sell
According to Nationwide Building Society's monthly house price report the average British home sold for £158,422 in November - down £25,600 compared to the previous year. Indeed house prices are expected to fall further and anyone with less than 30% equity in their home could feel the pinch.
As a result many fear falling into negative equity - however, unless you're planning to sell up this needn't concern you. Negative equity alone is never a factor that causes a Lender to take repossession proceedings and while property prices are falling currently they usually rise in the long term, so where possible sit tight and don't panic.
Organise your debts
While no debts should be overlooked, some are more important than others ¢ and in the majority of cases, keeping a roof over your head will be top of the list. So prioritise your debts and ensure those that are secured against your property are dealt with first. Then look at other important bills such as council tax and energy payments. You may even find there are some payments you could do without each month ¢ such as magazine subscriptions or a gym membership you rarely use.
Look for ways to reduce your debt
By cutting back on minor expenses and putting the cash towards your mortgage repayments instead you could quickly reduce your debt. For example, if you spend £5 a day on coffee and a sandwich at work, that's £100 a month that could be put to better use if you start taking a packed lunch and brewing your own coffee at home before pouring it into a Thermos flask.
Look for little ways to save and chip away at your debt¢¦ they will quickly add up.
Overpay when you have the cash
Paying back as much as you can, when you can, will help to stave off any risk of repossession ¢ overpaying even by small amounts can significantly slash the interest you pay and the length of time it takes to clear a mortgage.
For example, if you had a 25-year £100,000 mortgage at a rate of 6% and increased your monthly payments by £50 a month from £644 to £694, you could reduce your mortgage term by three years and eight months while saving £15,842 in interest.
Look for a better rate
Many of the best deals are now to be found on providers' standard variable rates (SVR), with most major lenders cutting their SVR at the turn of the month. However, if your lender hasn't passed on the latest Bank rate reductions, or you cannot access its SVR without incurring costs, you still may be able to find a better deal elsewhere - provided you have at least 25% equity in your home.
For example, you could save money by moving from one fixed rate deal to another, or to a tracker deal. In some cases you would still save money even when taking into account early repayment charges and remortgage fees.
As ever, you need to find out all the charges you would be liable for and work out both what you would have to pay each month and the true total cost over the deal period.
Remember that although variable rates offer the opportunity to benefit from falling rates, the only way to guarantee complete security of payment is by fixing your pay rate, allowing you to budget effectively.
Take out protection
With unemployment rising at its fastest rate for 16 years, many are wondering if they would cope financially if they lost their job.
One solution could be mortgage payment protection insurance (MPPI) which will cover repayments if you have an accident, fall sick or are unemployed. Most policies pay out for a defined benefit period to be determined by you and will include an initial exclusion period ¢ usually 30 or 60 days ¢ to stop people taking out a policy because they know in advance they are about to lose their job.
By shopping around with our MPPI comparison tool you could pick up a policy for as little as £6 a month depending on your circumstances ¢ a little extra cash spent that could provide a lot of peace of mind.
Use the support available
In his pre-Budget report, Alistair Darling announced an extension of the income support for mortgage interest scheme (ISMI) which helps homeowners pay interest payments on their mortgage when they are unemployed. The benefit is available after 13 weeks of unemployment and is being extended to be paid on the interest on loans up to £200,000.
You can capitalise on this benefit if you are on Income Support, income-based Jobseeker's Allowance or Pension Credit.
The Government will also be extending its £200m mortgage rescue scheme where a property is sold to a housing association and then rented back, although this is only available to a small number of borrowers.
Eight major lenders have agreed to defer some borrowers' interest for up to two years to help them manage repayments.
Warn your lender
Don't treat your mortgage provider like the enemy - inform it as soon as possible if you expect you are going to struggle to meet repayments. You may be able to negotiate lower repayments, interest or capital deferral or a payment holiday to help you through the rough patch.
Seek independent advice
There are a number of charities that could offer personalised advice for free including Citizens Advice and the Consumer Credit Counselling Service. They may even be able to negotiate with lenders on your behalf.
