In the past, the FCA found 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 now been published on the FCA website 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.”
Responding to the FCA’s findings, Jackie Bennett, Director of Mortgages at UK Finance, commented: “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.
Anyone with concerns about making their mortgage repayments should contact their lender as soon as possible to discuss the support and options available to them, a message echoed by the FCA.
UK Finance will continue to engage closely with the regulator, lenders and administrators to deliver fair outcomes for those customers in financial difficulty.”
