How to stay ahead if you're getting behind...

You may not realise it, but if you are one of the country's 11 million mortgage borrowers, life is getting riskier for you. The legal and practical situation of homeowners who get behind with their loan repayments is becoming more precarious.

In theory the lot of homeowners has improved since the height of the negative equity crisis in 1991, when 75,000 homes were repossessed. The mortgage code, for instance, which came into force three years ago, requires lenders to deal 'sympathetically and positively' with borrowers who get into arrears.

But, speaking about the bad old days of 1991, Sue Edwards, London money advice adviser for the National Association of Citizens Advice Bureaux (Nacab), says: 'If the same situation were to happen again, we'd have a lot more repossessions.'

There are two particularly worrying developments. Most lenders are accused of being harsh in their repossession policies. And, for its part, the Government is about to reduce the financial support it gives to indebted homeowners.

In a highly controversial move in October 1995, the Conservatives lengthened from four to nine months the period in which homeowners claiming state benefits would still have to make their own mortgage payments after they signed on.

The Labour government, in housing legislation which could be introduced this autumn, plans to extend the period before Income Support for Mortgage Payments (ISMI) becomes payable to 14 months. The proposal was recently outlined its housing green paper. The 14-month period was chosen because, the government says, homeowners should all buy mortgage payment protection insurance (MPPI) and this will cover them.

Although Nacab has serious concerns about MPPI, it is recommending that homeowners buy these policies - because you will almost definitely be repossessed if you cannot continue your mortgage payments for this period. However, citizens' advice bureau files are littered with examples of people whose MPPI claims are turned down by insurers.

There are major obstacles to claiming: if you are self-employed, for instance, and your business gets into trouble. You can be excluded if you become unemployed soon after starting the policy, and if your difficulties are caused by some sort of mental breakdown, you will also have trouble claiming. If your spouse or partner leaves you - a very common cause of arrears - you cannot claim for that. And since MPPI can easily cost over £15 a month for a £50,000 loan, many homeowners are choosing to go without.

But lenders are now taking a very strict line on borrowers who get into difficulties. By law, you cannot have your home repossessed within two months of falling behind - but your problems can start quickly after that.

Debt advisers are seeing may people appearing in court after the six months. Edwards believes the buoyant housing market is encouraging lenders to sell properties quickly when they think they can do so at a profit. If, by contrast, we were in a time of widespread negative equity, lenders might be slower to repossess, as a profitable sale would be unlikely.

In particular, lenders appear to be ignoring the landmark Cheltenham & Gloucester v Norgan case in 1995 in which it was held that borrowers who were in arrears could repay their debts over the remaining period of the mortgage rather than in a shorter timeframe. Paul Scannel of the Bow County Court Advice Service - a free service for people in court - says: 'In my experience, a lot of the big lenders - especially demutualised ones - want the money repaid in very short periods.'

Judges, however, apply the law Norgan case law. Research by Nacab in London last year showed the average repayment schedule requested by lenders was 1.8 years. The average offered by borrowers was 4.4 years - and the average granted by judges was 4.3 years.

Lenders deny they are being unduly harsh. Many plead that borrowers do not discuss their problems with them. A spokeswoman for the Woolwich says: 'On arrears, we pursue customers to make an arrangement based on their individual circumstances. We will go to court only if the customer doesn't co-operate.'

Repossession may not hit the headlines often at the moment, but it is still common. About 30,000 homes were repossessed in 1999, according to the Council of Mortgage Lenders, and another 180,000 homeowners were more than three months in arrears.

What to do if you fall into arrears

1: Talk to a debt adviser as soon as you get into difficulty. Your mortgage lender - and particularly its solicitor or bailiff agents - may take you more seriously if it knows you have someone sensible on your side. Citizens advice bureaux provide help for free.

2: Start talking to your mortgage lender. Many repossession orders come about because the borrower has ignored letters from the lender. The sooner you speak to the lender, the more likely you are to reach a compromise. If the matter has been sent to the litigation department - or to an outside firm of lawyers - you also have a bureaucratic battle to fight to stop a summons being issued.

3: Ensure you get all the basic information you need - statements and schedules of sums outstanding, in particular. Confusion over administration is a common feature of arrears and repo cases. This is partly caused by the fact that your file is passed on between different departments - from branch to head office, perhaps, then from arrears to the legal department to litigation. Insist on getting the name of the person who is dealing with your case. You now have a chance of being able to negotiate with them.

4: Recognise your own areas of flexibility. Consider whether you could meet the payments if the life of the mortgage were lengthened. Consider whether you could make regular payments if your debts were 'capitalised' and added into your mortgage debt. If the house price has gone up, you could still sell at a profit and pay off your liabilities. (Mortgage lenders are often wary of this route - but a court will sometimes give you a stay of execution if you have proof that the property is on the market.) Although you should not cash in an endowment policy if you have one, you could sell it through the second-hand endowments market (for a higher price than surrendering to the insurer, in many cases) if you really need the money.

5: Understand that both lenders and judges will want strong indications that you will eventually repay the debt. You increase the chances of repossession if you say you cannot meet your normal monthly payments and do not see how you can increase your income. At minimum, you should be chipping away at the arrears as well as meeting the basic payments.