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‘Repossession must be last resort’ says mortgage regulator

Mortgage lenders will have to treat customers more fairly when they fall into arrears, under new proposals.

Households struggling with mortgage arrears could find themselves subject to fairer rules under proposals put forward by The Financial Services Authority (FSA).

The key proposals from the regulator are to:

• Compel lenders to consider all options for borrowers and make sure repossession is a last resort
• Clarify that lenders must not apply a monthly arrears charge where the lender and customer have agreed an agreement to repay the arrears
• Make clear that lenders must not add early repayment charges on arrears charges
• Confirm that payments made by struggling customers must be allocated first to clearing the missed monthly payments, then arrears charges
• Oblige lenders to record all arrears handling telephone calls and keep all records for three years.

Lesley Titcomb, FSA director responsible for the mortgage sector, said: “Lenders need to be in no doubt of their obligations to customers who fall behind with payments.”

She added: “They must realise that such circumstances are not an opportunity to create further profits.”

Consultation on the FSA’s proposals will close on 25 April 2010.

Chris Eagle, commercial manager at Creditchoices.co.uk, advised: “If you have fallen behind with your mortgage repayments, the best advice is to contact your lender as soon as possible to discuss your options.

“If you feel your lender has treated you unfairly in relation to mortgage arrears, and you have complained to no avail, the Financial Ombudsman Service (www.financial-ombudsman.org.uk) may be able to help resolve the problem.”