RBS to throw borrowers a six-month lifeline

1 December 2008
The Royal Bank of Scotland is to give cash-strapped homeowners a six-month period of grace before starting repossession proceedings, the bank has announced.

The troubled bank, which also owns NatWest, said that it will not repossess the home of customers who fall behind on payments for six months from the date they first admit that they have a problem – double the industry standard of three months.

The announcement comes just days after the government was forced to take a 58% stake in the bank for £15 billion, and it is expected that HBOS and Lloyds TSB will be forced to follow suit in the coming weeks.

Announcing the move, Craig Donaldson, managing director of retail banking, said the guarantee would apply to all customers of RBS and NatWest and be valid until at least the end of next year.

“We fully understand that one of the biggest worries facing homeowners in financial difficulty is the thought of losing their home, this is especially true given the current economic climate,” said Donaldson. “We hope that our commitment will reassure our customers that we are committed to providing them with enough time, professional support and the assistance they need to resolve their financial difficulties.”

Andrew Hagger, of price comparison website Moneynet, explains that the guarantee will help. “In the grand scheme of things three months is not a great deal of time to give borrowers in arrears. Six months is far more realistic, and gives them more of a fighting chance to sort something out.”

Hagger explains that from the bank’s point of view it also makes sense. “The last thing lenders want to do is repossess a house in the current market. With house prices plummeting they will have a tough job to sell it.”

However David Holmes, a corporate affairs manager at the Yorkshire Building Society does not believe the six-month lifeline will make much difference. “For many borrowers it is simply putting off the inevitable,” he explains. “We contact borrowers as soon as they miss their first payment and try and work out an affordable repayment plan, rather than waiting for three or even six missed ones. The government is making an example of RBS and hoping others will follow, but it seems somewhat ironic given that Northern Rock has one of the worst repossession records in the industry.”

The government is keen to keep struggling borrrowers in their homes. The recent pre-action protocol states that lenders must prove that they have tried every possible solution to before they get the go-ahead from the courts to repossess a property.

According to recent figures from the Council of Mortgage Lenders, the number of people to have their homes repossessed in the third quarter of the year rose by 12%, with 11,300 properties being seized by lenders— up from 10,100 in the second quarter. The CML expects that a total of 45,000 properties will be repossessed this year.

“Lenders are under the microscope as to how they behave,” says David Hollingworth, a mortgage broker at London & Country. “The pressure is on to help borrowers stay in their homes. Yet despite this move by RBS the message remains the same - contact your lender sooner rather than later.”

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