In the current economic climate, many people have been left with money troubles due to redundancy, cuts in benefits and many more issues. This has led to many people not being able to pay for their mortgages and being faced with the prospect of standard repossession. The repossession process is long and involves court appearances and lengthy correspondence between the lender and borrower; to avoid this, more and more people are turning to voluntary surrender of their home.
Voluntary surrender means that the borrower knows and accepts the fact that they are no longer able to pay the mortgage and as a result, gives the keys back to the mortgage lender before the repossession process begins or has a chance to be completed. The main advantage of voluntary surrender is that court costs are reduced and therefore the overall amount that you need to repay will be smaller. However, in terms of credit rating, making a voluntary surrender instead of going through the repossession process has very little impact.
Once the keys are handed over, then the voluntary surrender is treated in the same way as repossession. The lender will sell the property and take the proceeds of the sale as repayment for the initial loan; if the sale price of the property is not enough to cover the outstanding loan amount, then the borrower will still need to make payments to pay the deficit however if the house sale is worth more than the debt owed, then the surplus will go to the borrower. Please be aware however that this amount can be susceptible to capital gains tax and can have an effect upon your benefits if you are claiming them.
Voluntary surrender of your home should not be viewed as an easy way out; it is the final option that a homeowner has and should only be done when you have alternative accommodation arranged.