How Long Does Repossession Debt Last?

If you’re planning to apply for a mortgage, or, indeed for anything that requires a credit report, you may be worried about the effect of house repossession on your credit rating.

In this article, we’ll explore the impact of having a repossessed property on your credit file.

We’ll also discuss the actions you may take to avoid having your property repossessed and to protect your credit score.

How Long Does Repossession Stay on your Credit File?

There are a number of different factors that may affect your credit history, from serious matters such as bankruptcy to more basic activity like “hard” credit checks. There are various time limits within which these activities will stay on your credit report.

For example, a “hard” search (that is, an in-depth credit check) will stay on your credit file for one year. Bankruptcy will often remain on record for six years. However, there are certain types of bankruptcy that will affect your credit score for up to 15 years.

If you have previously had your house repossessed, details of this will remain on your credit report – and be accessible to credit reference agencies and other bodies – for six years.

This is the same if you have large mortgage shortfall debts that you fail to repay on time.

Mortgage shortfall debts arise if your property’s market value falls below the value of your mortgage.  Should this be the case, you will be in negative equity.

There will then be a mortgage shortfall – equating to the difference between the property value and the mortgage – if you sell the property (or if your lender does this following repossession).

The situation can get more serious if you have other unmanageable debts (such as credit cards and personal loans).

Can I Get A New Mortgage If I Have Repossession Debt?

It will usually be much harder to get another mortgage following repossession, particularly if you still owe money.

In order to assess you for a new mortgage account, lenders will check the following:

• The date of repossession
• What you originally borrowed and anything you still owe
• Your current financial situation and credit report and how it has changed since the repossession
• The reasons for the repossession

The more recent the repossession of your property, the larger the deposit your new lender is likely to require and the less you will likely to be able to borrow.

Can I Do Anything to “Cancel Out” Bad Credit After Repossession?

There are certainly ways to improve your credit score even after having property repossessed. If you can, you should take action to pay off any existing debt and avoid getting into other arrears.

You should also take extra care to pay bills on time. Where possible, it’s a good idea to avoid new interactions with organisations undertake “hard checks” for the time being. An insurance company, a credit provider or a mobile phone company may do this, for example.

Changing addresses or jobs too many times in a short period can negatively affect your credit, as can failing to entirely pay off a credit card on a monthly basis.

Of course, the best approach to avoiding a bad credit score is to find a way out of mortgage debt as quickly and effectively as you can, before your mortgage lender takes court action.

What a Mortgage Company or Lender Must do Before they Repossess your House

Your mortgage lender may only request a repossession order after they have provided you with sufficient notice and given you all of the right information in a timely manner. Mortgage lenders must follow pre-action protocols which include:

• Let the borrower know the amount they owe in outstanding mortgage debts
• Consider and reply to any proposals made by the borrower in terms of changes to future mortgage payments
• Explain their reasons if they decide to reject those proposals
• Give the borrower time to consider any lender proposals made
• Provide written notice at least 15 days before they plan to start court action
• Let the borrower know the date of the repossession hearing
• Inform the local council of any court hearing within five days of finding out the date
• Allow time for you to sell (through auction or a homebuying company)

How to Deal with Outstanding Debt Before you Face Repossession

If you are in mortgage debt, it can be easy to feel trapped. Once you owe money to a mortgage lender, it’s a slippery slope towards major arrears.

For this reason, one of the best things you can do is to inform your mortgage lender of your financial circumstances as soon as you anticipate any missed payments. More often than not, they will be willing to revise your current payment arrangement and set up a repayment plan.

Most lenders are likely to appreciate that taking court action against those who owe money will be far more expensive, stressful and time consuming than simply revising your original agreement.

Of course, as a borrower, it is always better to tackle your mortgage debt and try to find financial support or set up a new repayment plan rather than seeing your property repossessed and becoming burdened with bad credit.

If you have trouble coming to an agreement with your lender, you should seek assistance from a debt management or similar housing advice organisations as a matter of urgency. You can also call the Property Solvers’ stop repossession 24 hour freephone helpline on 0800 044 3733.