What is Voluntary Repossession? Your Next Steps Explained

Are you worried that a bailiff may come knocking at your door? Are you stressed about your property being taken away? You’re not alone. Each month, over 170,000 people visit our website seeking guidance on debt solutions. We understand the fear and stress that comes with these hard times.

In this article, we’ll explain:

• What voluntary repossession means, and how it works.
• Steps to take if you’re considering voluntary repossession.
• The implications of voluntary repossession on your benefits and credit.
• Different debt solutions you might consider.
• Resources for free debt advice in the UK.

Our team is experienced, as some of us have even faced similar situations. We understand the challenges you’re dealing with and will offer guidance on navigating this tough situation. We’ll cover everything from dealing with lenders to understanding the impact on your finances.

Let’s get started on finding a new way forward for you.

What is voluntary repossession?

Voluntary repossession involves handing back the keys to your home to the lender. It means you’ll have to move out so the property can be sold to pay off what’s owed.

There are downsides to going down this route when you’re drowning in debt though. For example, you’d no longer be able to live in your home but you’d still be liable for specific things until the property sells!

People typically choose to go down this route because there’s no way they can continue paying a mortgage. Plus, they can’t sell their houses because the properties are in negative equity!

What are the consequences of voluntary repossession UK?

The consequences of voluntary repossession doesn’t just mean you have to move out. It can affect the following too: 

• The way a council helps you when you’ve nowhere to live
• The benefits you receive could be impacted
• The price your home sells for could be less than you sold it yourself

That said, a voluntary repossession could be an option if you want to stop things from getting to the bailiff stage.

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How is the sale price assessed in a voluntary repossession?

Lenders should sell homes they repossess for the best price they can “reasonably achieve”.

So when you agree to a voluntary repossession, the lender must sell it for the best price they can get. However, the sale price could be far less than if you sold your home yourself!

Also, if your property is in negative equity, the chances are the lender may sell it at auction. In which case, the sale price achieved could be a lot less!

What happens when a lender sells your house?

The lender can put your home on the market and sell it after they repossess it. However, the sale price may not cover what you actually owe!

It’s also important to know that you could sell your home before it gets to the repossession stage!

You should seek debt advice from a UK charity or from an independent debt management company before things get to this stage.

How would a Voluntary Repossession affect your benefits?

When you move out of your home after giving back the keys, it could affect the benefits you’re entitled to receive.

It’s because the money you potentially get from the sale of the house (equity) after everyone else is paid off, could change your eligibility.

The Department for Work and Pensions calculates what you’ll probably get following your home’s sale. They base their calculations on the current market value of your home.

So, if there’s over £6,000 equity and you’ve chosen a voluntary repossession, it will affect your benefits. In short, you could receive less or the benefits could stop altogether.

However, if you’re in negative equity or you’re likely to receive less than £6,000 following the sale of your home, your benefits shouldn’t be affected.

It’s also worth noting that equity may be ignored, but it would depend on several things. For instance, you moved out of your home due to a recent breakdown in a relationship.

Or you’ve taken reasonable steps to ensure the sale of your property.

What happens when lenders take possession of your home?

As mentioned, the lender must sell your home for the best price they can once they repossess it. However, a property can also be sold at auction if it’s in negative equity.

That said, most mortgage lenders would sell the property using an estate agent to achieve the best price possible.

What happens to mortgage payments after your home is repossessed?

Once you agree to a voluntary repossession, you won’t have to pay any further mortgage instalments. This happens as soon as the court issues an ‘outright possession order’.

However, you’d still be liable for the interest on what’s owed right up to when your house sells.

Who is responsible for maintenance and repairs?

Maintenance and repairs fall to the lender once they repossess your property. They have to pay for all maintenance and repairs until your home sells.

In short, the lender must carry out emergency and essential repairs and could be responsible for basic maintenance on your property.

The downside to this is the lender will add these costs to what you already owe!

What happens once your home is sold?

Once your home is sold, the lender takes money from the sale to repay what’s owed on the property.

It could include the following:

• The outstanding mortgage
• The lender’s legal fees/costs
• Auction or agent fees
• The cost of repairs and maintenance

If there’s any money left over, it’s used to repay other debts you may have secured on your house.

The residue of the sale if any money is left is then paid to you.

What happens when a sale doesn’t cover all your debt?

If there’s a mortgage shortfall which is when the sale of your home doesn’t cover all your debt, the mortgage indemnity insurer or lender could write off what’s owed.

However, there are things you can do to make up the difference. For example, you could sell some assets. You could sell your car if it’s not on finance and other items too.

Will a voluntary repossession affect my credit?

Yes, any repossession is going to have a negative impact on your credit score.

Your voluntary repossession will be visible on your credit file for 6 years. During this time, you’re probably going to find it pretty much impossible to get credit. If you can get credit, in my experience, it will be a product specifically for those with a bad credit history.

This is because you will be flagged as a ‘high-risk’ customer – someone who has a history of not paying or struggling to repay their debts.

Even if you go through a voluntary repossession, your credit file is going to look very poor to credit companies for at least 6 years.

Could the council help with housing options?

If you can no longer afford to pay a mortgage, the council could provide advice on the different housing options open to you.

A local authority could also provide advice on how to cope with council tax arrears to avoid bailiffs getting involved.

However, the downside to handing back the keys in a voluntary repossession is that the council may see this as you choosing to make yourself ‘intentionally homeless’.

It could affect the amount of help a council would consider offering you.

According to Shelter, the housing and homeless charity, you shouldn’t give back the keys to your home until you have somewhere to move to!

But you shouldn’t let things go on for too long either. If you do, you may find you fall into arrears with other things like your council tax payments.

It could result in bailiffs visiting you for non-payment of your council tax.

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Can I get a debt solution?

A mortgage is a secured debt which means that you can’t use a debt solution to help pay it off. However, you can use a debt solution to help you manage some of your unsecured debts.

There are several different debt solutions available in the UK, so I recommend speaking to a debt charity as soon as possible. Their advisors will be able to look at your finances in detail and help you work out which debt solution will work best for you.

I have linked a few charities that offer these advisory services for free below.

Debt Management Plan (DMP)

A DMP is an informal debt solution that lets you pay off your debts via a single monthly payment.

Because it is informal, it is not legally binding so you are not tied into a DMP for a minimum number of payments.

Individual Voluntary Arrangement (IVA)

An IVA is a formal agreement between you and your creditors. You agree to pay a monthly sum that is distributed amongst your debts, and your creditors agree not to contact you during your IVA.

IVAs typically last for 5 or 6 years, and any outstanding debt is wiped off when it ends.

Keep in mind that IVAs are not suitable for everyone. You need to owe several thousand pounds to more than one creditor to be eligible. You also need to demonstrate that you have some disposable income every month.

Trust Deed

IVAs are not available in Scotland. Instead, you will need to opt for a Trust Deed.

Trust Deeds work in the same way as an IVA – you pay an agreed sum each month that is shared amongst your creditors, they can’t contact you, and any leftover debt at the end of your Trust Deed term is written off.

Debt Relief Order (DRO)

A DRO is a good option for those facing financial hardship with no assets and little income.

For 12 months, you make no payments, but your creditors freeze your interest and don’t contact you.

If your finances haven’t improved during this year, you may be able to write off your unsecured debts.

Bankruptcy

If you have debts but no realistic possibility of ever paying them off, you may need to declare bankruptcy.

Bankruptcy has an unfair stigma attached to it as it may be your only way of getting a financial fresh start. That said, it is a serious financial situation that should not be taken lightly.

Sequestration

Sequestration is the Scottish version of bankruptcy.

If you have little income and no valuable assets, you may be able to apply for a minimal asset process bankruptcy (MAP). A MAP is a quicker, cheaper, and more straightforward version of sequestration, so worth considering.

Lastly, what is voluntary repossession? Is it the right choice for you?

It can be one of the most stressful things when you can’t keep up with payments on your mortgage. Knowing what to do can seem challenging so it’s important to seek advice before making any decisions.

Luckily, you can seek help from a debt management company or one of the leading UK debt charities.

A debt expert can point you in the right direction. An adviser could let you know what debt solutions are available too. They can offer advice on whether a voluntary repossession is the right choice for you.