Standing on the threshold of losing their home

As repossession fears mount, Kate Hughes talks to an advice charity that received a million calls last year

The man on the phone is desperate. He is in his late 30s and has two small children. He owes £30,000 on overdrafts, loans and credit cards and has missed several payments on his mortgage. A debt collector is knocking on his front door even as he's speaking.

His is typical of the calls received every day by debt charity the Consumer Credit Counselling Service (CCCS) at its new mortgage advice centre.

The launch of the service is timely as the twin spectres of repossession and negative equity are stalking the country for the first time since the early 1990s. In fact, according to the Council of Mortgage Lenders, there were 4,343 repossession orders made by the courts in the fourth quarter of 2003. Just four years later, that had more than trebled to 13,504.

In 2007, the charity received almost 1.1 million calls from people who had been referred either by their bank, by their friends or their family, or who had simply found they could no longer cope and had looked for help themselves.

These debt crises may not just be down to being bad with money. Divorce is one of the most common reasons for financial problems, says Steve Nicholson, chief financial officer for the CCCS. "A divorcee will

find that overnight their income has halved but the bills are still coming in," he explains. "If your spouse has walked out, taking their income with them, you still have a mortgage, bills and costs to cover. Debt can become unmanageable almost instantly."

But for huge numbers of those in trouble, the soaring cost of living is the main problem. Many are finding that their outgoings exceed their income every month as they struggle to cope with inflated mortgages and higher prices for energy and food. For example, the utilities bills of people going to the CCCS have increased by an average of 153 per cent in just the past four years.

As a result, individuals are turning to loans and credit cards to bridge the gap between income and expenditure. And as things get worse, they are often missing mortgage payments.

"Our clients' budgets have been pared to the bone, and they are the tip of the iceberg," says CCCS chairman Malcolm Hurlston. "If they are paying more for day-to-day living, the impact of these rising costs will be manifold with the rest of the population."

All is not lost, though. Among those who have talked to the charity and are staring down the barrel of repossession, just 22 per cent will end up losing their home. It is a long road back from financial ruin but it all starts with some small, simple steps.

"Most of the people who call us have never done a budget," says Mr Nicholson. "They have no idea how much they are spending. We have to be realistic about how much things cost, but they will have to make sacrifices if they want to stay in their homes and stop the 2am calls from creditors."

CCCS advisers are often ex-financial services staff. Many have come from debt collection agencies – fed up with the way their employers and colleagues treated those in the red. Many have had serious debt problems themselves.

Steve Hope, a mortgage adviser who works with those at serious risk of losing their homes to repossession, moved to the charity from a previous life as a nurse. He recommends that if you find yourself in serious debt, the golden rule is to focus on keeping a roof over your head, food on your table and money coming in. Other things may be important but they're not imperative.

The CCCS offers its clients a free debt management plan, where the adviser will go through the budget, cutting down where possible. It will then approach creditors on behalf of its clients and offer as much as the debtor can afford. The charity reports that mortgage lenders are often prepared to listen. "At the end of the day, it is worth more to them to keep the client and accept payments, while racking up interest, than to kick them out," Mr Hope points out.

Once a repayment plan is agreed, a client will make one monthly payment to the CCCS, which will then distribute the negotiated sum among the debtor's creditors. Lenders agree to stop any collections activity, but may not consent to stop interest or late payment charges.

Settling up with all creditors is the ideal, but Mr Hope says he often has to advise that clients stop making non-priority payments – such as those on credit cards and unsecured personal loans – and focus on being able to afford to eat.

"We always say that those creditors who shout the loudest have the least power," he explains. "A mortgage lender or secured lender can take your home away, and an electricity company can cut your lights, so they have to be your priorities.

"Non-priority creditors, who have lent money that is not secured on your home, can do very little," adds Mr Hope. "They can threaten and bully all they want, and often do, to get you to beg, steal or borrow money to pay them, but they have few legal rights when it comes to getting money out of you that you don't have. They may inform you that they will be sending the bailiffs round, but in fact they will have to get a judge to agree to it before that happens."

However, the CCCS cannot always salvage a bad situation. "Sometimes there is no way out. I just have to tell them that they will lose their home," says Mr Hopes. "Some clients may have had a repossession order suspended, but if they miss any of those newly agreed payments, it is very easy for the bank to go straight back to the judge and get a new repossession order.

"Sometimes they get very emotional – some cry," he adds. "Some haven't even told their partners. But some have simply needed to hear someone else say the words. Then they can accept that they have no choice but to accept repossession and leave their home."