Watchdog cracks down on repossessions

House and keys

Mortgage lenders have been given a deadline to ensure homeowners facing repossession are treated as fairly as possible.

The government recently introduced new rules to protect homeowners in light of evidence that suggested banks and building societies are too heavy handed when dealing with borrowers struggling to meet their repayments. The new rules mean all other options must be explored before lenders can apply to the Court for repossession orders.

Now the Financial Services Authority (FSA) has sent warning letters to the chief executives of all mortgage lenders giving them a deadline of 31 January 2009 to ensure any customers facing arrears are treated fairly. This is the second warning issued by the FSA in recent months following a review by the regulator that found an increasing number of households are at risk of repossession.

The review also found weakenesses in the way lenders deal with customers who struggle to pay their mortgage, often pushing through repossession orders when alternatives (such as payment breaks) could help keep the roof over their heads.

The letter reads: “Conditions in the mortgage market are difficult and it seems likely that these conditions will persist for sometime. In such a challenging operating environment it is particularly important for senior management to ensure the fair treatment of customers, including when they go into arrears.”

It also warns that the FSA will, if necessary, take “enforcement action” against banks to ensure the fair treatment of mortgage borrowers. Lenders will be asked to give examples of how they have dealt with borrowers who have missed payments to assess whether they have been treated fairly or not.

Trade body the Council of Mortgage Lenders (CML) says that its members are already doing their utmost to ensure the fair treatment of borrowers.

Michael Coogan, director general of the CML, says: "Lenders understand that in the current difficult economic environment there is bound to be a high level of scrutiny of their handling of mortgage arrears. Borrowers facing difficulty deserve to know that their lenders have the right measures in place to treat them fairly and try to help them keep their homes wherever this is an achievable outcome.”

Adrian Coles, director general of the Building Society Associaton (BSA), adds that its members already see repossession as a last resort.

“Building societies want their borrowers to remain in their homes if they have repayment difficulties, and genuinely view repossession as a last resort,” he says. “The recent commitment by major lenders not to commence repossession action within three months of an account going into arrears reflects standard building society practice, societies also comply with the new Civil Justice Council pre action protocol on possessions.”

However, Coles says borrowers also have a responsibility to be open and honest with their mortgage lender. “It is vital that borrowers who have, or believe they may be about to have, repayment difficulties contact their building society as soon as possible,” he says.