The Financial Conduct Authority (FCA) has published findings on how mortgage lenders treat customers who have long-term mortgage arrears and provide forbearance to affected customers.

The FCA had previously identified that there was a trend of increasing long-term arrears cases, whilst the number of homes being repossessed had been falling. As a result of this widening trend, the FCA set out in its 2017/18 Business Plan to examine whether customers with long-term mortgage arrears were experiencing harm from extended forbearance.

Examples of harm could include forbearance arrangements which were unaffordable, with severe consequences for the overall financial situation of customers, or where the debt continues to grow. It could also ultimately result in a repossession with considerably reduced equity in their homes.

Overall, the FCA did not identify widespread harm to customers from extended forbearance. However, it did see some inconsistencies in firms’ arrears management practices. These findings have been published on the FCA website today and firms offering or administering mortgages should read these and where necessary make improvements.

This work was undertaken against a backdrop of low-interest rates where the interest on arrears balances was relatively low. It’s important that customers who are already in long-term arrears, and mortgage customers 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.

Customers should:

  • 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 “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.

Responding to the FCA’s findings on long-term mortgage arrears, Jackie Bennett, Director of Mortgages at UK Finance, said “It is encouraging that overall the FCA did not identify widespread harm to customers from extended forbearance. The industry acknowledges the regulator’s findings of some inconsistencies in firms’ arrears management practices.”

“UK Finance will continue to engage closely with the regulator, lenders and administrators to deliver fair outcomes for those customers in financial difficulty.”

Paul Broadhead, Head of Mortgage Policy said “We welcome the FCA’s constructive findings on long-term mortgage arrears published today.  Building societies have focused their efforts on keeping consumers experiencing financial difficulties in their own homes with repossession as a last resort. We encourage anyone who is facing a financial squeeze to get in touch with their lender early.  The sooner the conversation starts the more likely it is that a solution can be found.”

Terry Baxter, Director of Risk and Compliance at Target Group, said “The FCA’s findings on how mortgage lenders treat customers who have long-term arrears is a timely and important study. There has been a movement by a considerable number of stakeholders to assess the practices used and ensure they are suitable for specific customers. This is undoubtedly positive and the more the industry puts its customers first, the better.”

“It is crucial that lenders who are not sure on what best practice looks like, or have any concerns around their service offerings, review and adapt their processes effectively. Having thorough case monitoring and reviews in place, solid frameworks to assess a customer’s vulnerability and accurate communications are all key to ensuring customers are treated fairly.”

“The FCA highlighted that some firms adopted poor practices that meant client communications were not always accurate, or other payment measures were not considered. It is important, particularly in the current business context, that lenders are confident in their systems and employ robust practices, and if not, look to outsource particular functions to ensure customer service remains excellent.”