Lenders told to help struggling borrowers
Chancellor Alistair Darling has met with representatives of the mortgage banking sector to discuss what the industry can do to help borrowers hit by the credit crunch.
As a result, lenders have been given one month to review the way they deal with borrowers who are unable to make their monthly mortgage repayments.
Currently, mortgage lenders are regulated by the Financial Services Authority and are therefore obliged to follow strict rules about how their treat their customers – including only moving to repossession as a last resort.
Lenders are also able to follow voluntary codes of conduct that include providing debt information to customers, communicating with debt advisors and actively identifying at-risk borrowers facing repossession.
However, for some time there have been concerns that lenders are too aggressive when it comes to repossessing homes from people who have not kept up their repayments. They have also been criticised for inflicting fines on people who miss a payment, and failing to inform borrowers’ financial advisors when they fall into difficulties.
As a result of the meeting with Darling, lenders have now been ordered to review their voluntary arrangements, codes and other commitments and report back to ministers by the end of May.
Lenders will also have to improve the way they identify borrowers facing payment shock as their fixed rate deals come to an end.
Darling says: “I welcome the arrangements that the industry has in place and will continue to build upon, to address the concerns of borrowers in difficulty. I hope that lenders continue to take their responsibilities towards customers seriously.”
Michael Coogan, director general of the Council of Mortgage Lenders, adds that lenders will work with the government to ensure as few borrowers as possible face the threat of repossession.
He says: “Early contact with the lender before a payment is missed should ensure the widest range of options is available so customers can help themselves avoid payment shock.”
A homeowner’s worst nightmare; repossession is an action of last resort by mortgage lenders to recover money from borrowers that have failed to keep up with repayments on their mortgage or other loan secured on their home (see secured loan). Repossession is a legal procedure that has to go through several processes before the homeowner is evicted and the property reposed. These are: if a borrower keeps defaulting; the lender applies for a solicitor’s notice; the lender instigates possession proceedings through the court; at the court hearing a possession order is granted and sometimes a possession warrant; a bailiff is appointed and an eviction notice issued at which point the homeowner has two to three weeks to vacate the property.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.