How mortgage lenders treat customers who have long-term mortgage arrears
Financial Conduct Authority (FCA) published their report on long-term mortgage arrears and how lenders treat borrowers.
The FCA had previously identified that there was a trend of increasing long-term arrears cases. The number of homes being repossessed had been falling, but long term arrear cases were getting worse.
Due to this widening trend, the FCA set out in its Business Plan 2017/18 to examine whether customers with long-term mortgage arrears were experiencing harm from extended forbearance.
Potential problems from due to long term mortgage arrears, extended forbearance maybe;
(1) Payment arrangements which were unaffordable, with severe consequences for the overall financial situation of borrower, where the debt is getting worse.
(2) It could also ultimately result in a repossession with considerably reduced equity in their homes or in some cases no equity.
Repossession with considerably reduced equity
Borrowers who might go into arrears with an increase in interest rates, or a change to their personal circumstances are aware of what actions they should be taking.
- Speak to their mortgage provider at the first sign of financial difficulty, or a change in circumstances, so they can discuss their circumstances together and identify potential solutions.
- Not delay or ignore the situation – speaking with their mortgage provider early may prevent the situation from worsening as their provider may be able to discuss a wider range of options. This may also give them more time to make a difference.
- Seek additional support and free, independent guidance from organisations such as the Money Advice Service.
Jonathan Davidson, Executive Director of Supervision said:
Talk to their lender as early
‘We know that many customers remain hesitant to contact their lender to discuss their mortgage arrears for a variety of reasons. We encourage customers to talk to their lender as early as possible as this may give them more time and options when it comes to the steps they can take’.
The FCA encourages customers with arrears to engage with their mortgage provider about mortgage arrears and the options that are available to them. The FCA has also provided the feedback to firms in the sample and is considering where in some cases further regulatory action in necessary. Under the FCA’s rules, firms may only consider repossession as a last resort.
Date; 6th of December 2018
Author; Tracy Hemming