The UK Insolvency Helpline has revealed a significant rise in the number of its clients posting the keys their homes to it offices in a bid to start the voluntary repossession process on their properties. The areas most affected are the Midlands, the North, Wales, Scotland and the South West.


Richard Sorsky, the national money advice co-ordinator at The UK Insolvency Helpline says, "One of the main reasons for the trend is financial difficulties arising from credit card spending, overdrafts and other debts resulting in people taking insolvency advice. Comparisons with the early 90's are ill founded, people are taking a view that they may as well going into less expensive rented accommodation than spend all of their income on mortgages and secured loans that will take a lifetime to pay off."

Voluntary Repossession or "handing the keys back" is when a mortgage borrower who is struggling to meet their mortgage repayments decides to vacate their home, and give the keys to their property back to the mortgage lender for repossession. Handing back the keys to your property should only be done as the result of serious consideration and as a measure of last resort.

Those in debt feel that handing their keys back is likely to be a less expensive option as they stop paying their mortgages and instead use the money to save for a rental deposit to pay for alternative accommodation. The aim is to get families with young children re-housed and avoid the whole bailiff process.

If their homes are sold for less than the amount owed on mortgage, they are still liable for the outstanding debts. At this stage the debtors are opting for filing bankruptcy or opting for a debt busting IVA (Individual Voluntary Arrangement), which clears debts over a period of time.

Sometimes handing keys back to the lender is not a financial decision

Some callers to the helpline are finding they just cannot sell their properties. Many blame their areas that have gone drastically downhill and the council service charges are extortionate. Many of the cases involve ex council houses and flats. Richard Sorsky adds, "People realise the repossession process will affect their credit rating, but they are not too worried about that, as most have serious debt problems anyway."

When houses are repossessed the lenders will sell them for whatever they can get. The amount is generally less than what the owner could sell for. If there's no mortgage guarantee, the mortgage company will then try to recover the rest of the loan from previous owner. If there is a mortgage guarantee, the insurance company will try to recover the balance of the loan from the previous owner. For the ex-home owner the debt becomes unsecured and far easier to deal with.

Richard Sorsky adds, "The whole process of repossession turns secured debts into unsecured ones. If advice is taken early by taking out an IVA or going bankruptcy then losses can be mitigated. The worst thing to do is bury your head in the sand. The debts won't go way unless you deal with them".