MONEY COMMENT
How To Avoid Losing Your Home

By Cliff D'Arcy
February 3, 2003

We Britons love to own our homes: owner-occupiers account for about two-thirds of all households. However, we're considered a strange lot on the Continent: I spent a lot of time in Germany in my youth, where it was considered quite odd for someone to give up the flexibility of renting and actually buy a home.

Here in the UK, this desire to own our properties - together with a shortage of supply and historically low interest rates - has created a property boom. According to a report released at the end of January by trade association the Council of Mortgage Lenders (CML), we held almost 11.4 million mortgages at the end of last year, up about a fifth (18%) since the start of 1991.

An increase in the number of mortgages and the amounts borrowed means that mortgage lending has exploded, reaching £663 billion by November 2002. This is great for lenders but what happens if we fall on hard times and can't keep up our mortgage payments?

The most common causes of mortgage arrears are:

* redundancy, unemployment and business failure
* loss of overtime, bonuses or other earnings
* accident, sickness or injury
* marital or relationship breakdown
* increased costs elsewhere, such as childcare, etc.

If you're having difficulties with payment, your lender will warn you politely that you're not keeping up your end of the deal. These calls and letters will become more frequent until your case is referred to the credit collection department for recovery. If all else fails, the lender will go to court to repossess - take back - your house, then sell it to recover the mortgage plus all costs.

In 2002, lenders repossessed 11,970 homes - about one in a thousand (0.11%) - the lowest level for twenty years.  It's a lot better than the peak in 1991, when members of the CML took back a staggering 75,540 properties, dumping about a quarter of a million people onto the streets!

Of course, if house prices do start falling, this figure is bound to rise from last year's low, thanks to record debt levels. Here are some tips to make sure your home doesn't get repossessed.

In the good times:

* Find ways to trim your expenses and boost your income. Our friendly and supportive community of Fools offers great advice on our Living Below Your Means discussion board.
* Think about ways to chip away at your debt: re-mortgage to take advantage of lower rates; make larger monthly payments than you need to; pay lump sums off your mortgage; switch from an interest-only to a repayment loan; or simply save more money for the rainy days.

In the bad times:

* Don't bury your head in the sand. If you think you're going to have problems meeting your payments, tell your lender - telephone, visit, write or e-mail. If you don't show that you have a genuine problem or excuse, they'll treat you like a dishonest bad payer.
* Always make your mortgage and other secured loan payments your first priority. Remember that no other company can take away your home if you don't pay its bill.
* Don't make promises you can't keep: produce a sensible repayment schedule, listing all your income and expenses and send it to all your creditors. Stick to it and make sure your mortgage is at the top of the list. If you can't pay the full amount, pay what you can.
* Consider "downsizing": moving to a smaller home or a cheaper area to reduce or clear your mortgage.
* You can find great advice at our Dealing With Debt discussion board. Other Fools have been there and survived to tell their tales.

Find out how to get the mortgage that's best for you in our mortgage centre.