According to the financial watchdog, many mortgage lenders could manage the situations of UK homeowners who find themselves in arrears better.
The Finance Conduct Authority has revealed in its latest review that they have discovered what they describe as ‘inconsistencies’ in how arrears are managed by lenders, reiterating that repossession should always be seen as a last resort, once all other measures have been taken.
Additionally, the FCA were seeking to discover if homeowners in long-term mortgage arrears had experienced extended forbearance, having previously identified that a succession of repossessions had failed following a trend of increased long-term arrears.
The examples they gave to illustrate potential harm caused include unaffordable forbearance arrangements with severe financial repercussions attached, leading to mounting debt for customers, as well as untimely repossession leading to reduced equity.
Despite not finding anything to suggest that there is an epidemic of widespread harm done to customers from extended forbearance, the FCA did discover vast inconsistencies in how firms manage the arrears of their customers.
But it pointed out that this is 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,’ says the report.
Following the findings, the FCA advise anyone who encounters the first sign of financial turbulence to contact their mortgage provider immediately. They are also advised to do this in the event of a change in circumstances, to discuss their options and identify potential solutions before any future problems may arise.
They also point out that free, independent advice is available from the Money Advice Service, as well as other organisations in the financial field.
‘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,’ said Jonathan Davidson, executive director of supervision.
Firms are only permitted to consider repossession as a last resort under FCA rules, and so they have provided feedback to firms assessed in their study while they consider whether or not further action against the most aggressive lenders. They also encourage customers in arrears to maintain regular contact with their mortgage provider to discuss all their options.
Jackie Bennett, director of mortgages at UK Finance, says that the FCA should be encouraged by their findings overall, as they did not uncover any widespread harm to customers in arrears, but added that the financial industry at large must take seriously the inconsistencies in how firms manage their customers.
‘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,’ she explained.
‘UK Finance will continue to engage closely with the regulator, lenders and administrators to deliver fair outcomes for those customers in financial difficulty,’ she added.