There are 101 mistakes you can make in relation to your home. But, which are the biggest, the most damaging, the least smart, the most commonplace mistakes?
From my many years’ experience as a property lawyer and adviser, here are the top 3:
1. Slow in dealing with mortgage arrears
Mortgage arrears is a biggie because, if not promptly and properly addressed, proceedings to evict could commence and in the worst case scenario the homeowner could be evicted and made homeless.
For any number of reasons, a homeowner can have difficulties paying the mortgage, including:
- Loss of job
- Sickness or ill health
- Relationship breakup
- Large unexpected expenditure
- Increases in interest rates leading to an unaffordable rise in monthly mortgage payments.
What is more important than not being able to pay the mortgage is how the problem is dealt with.
Things a homeowner should not do:
- Bury their head in the sand
- Fail to understand the gravity of the situation and the high level of risk
- Struggle alone with the problem while all the time it is getting worse.
Things a homeowner should do:
- Prioritise the mortgage debt over all other outgoings
- Devise a plan to clear the arrears within a month and if that does not seem possible, seek professional debt advice
- Contact the mortgage company, explain the problem and see if they are able to help in any way
- If there is any risk of court proceedings for possession, seek legal advice immediately
It is crucially important for the homeowner to act with all possible speed at every stage of mortgage debt.
For instance if a “threatening” letter is received from the mortgage company, it should not be sat on for weeks. Act promptly and in line with any deadline date, steps or action suggested in the letter.
Sometimes mortgage arrears can be managed and cleared over time by arrangement with the mortgage company.
On other occasions, the only way out of the problem is to borrow money from another lender to clear the arrears. If that is the only practical alternative, it is all the more important for the homeowner to act as fast as possible.
If a possession order has been obtained, it is vital for the homeowner to put any refinance arrangement in place before the eviction date given by the bailiffs.
Over the years I have seen countless cases where people have lost their home because they have been far too slow in addressing the problem and seeking professional advice before things spiral out of control.
If more homeowners seek professional advice as soon as they get into mortgage difficulties, the number of evictions each year would be drastically reduced.
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2. Not adding value before selling
Where we live is primarily a home, but that does not mean it cannot also be an investment.
Homeowners typically overlook the investment potential of their residence.
Home improvements that can add significant value to a property include:
- New kitchen
- New bathroom
- Loft conversion
According to the price comparison website uswitch, a £20,000 extension could add value of £50,000 plus in some parts of the country.
Adding value to a home is particularly attractive on tax grounds. The gains made on the sale of a residence normally do not attract capital gains tax due to the “private residence relief”.
Selling a property without adding value where possible is, in effect, giving away some of the possible profit to the buyer.
3. Not doing enough to pay off the mortgage
When buying a property with a mortgage, homeowners can go for:
- A repayment mortgage
- An interest only mortgage.
The vast majority of new mortgages are of the repayment type, however it is still possible to choose an interest only mortgage and millions of people have interest only mortgages taken out in the past.
With a repayment mortgage the monthly payment pays the interest and reduces the capital sum borrowed progressively to zero by the end of the mortgage.
With an interest only mortgage the monthly payment only reduces the interest element, with the capital sum borrowed remaining the same and repayable in full at the end of the mortgage.
At the end of a mortgage, homeowners with a repayment mortgage are left with a property free of debt – an attractive advantage as they reach or move towards retirement.
The benefits of a mortgage-free property include:
- The owner does not have to move at the end of the mortgage term
- The owner has a valuable asset which can be passed to their heirs free of mortgage
- The owner is free to mortgage the property if they need to raise funds.
A repayment mortgage will be more expensive but it is an expense many homeowners could afford with reasonable curtailment of their spending – especially in the later years of their mortgage as their wages and savings grow.
It may be possible for homeowners with an interest only mortgage to reduce the capital sum borrowed during the mortgage term. They can do so by making monthly overpayments with the agreement of the lender.
Homeowners can give themselves greater wealth, flexibility and peace of mind if they aim to pay off their mortgage debt rather than leave it to the end of the mortgage term – when they may need to sell their home to pay off the sum due.
Do you agree with me as to the 3 biggest mistakes? Please leave your comments below.
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Rebel Property Coach
My website is: www.rebelpropertycoach.com