The Financial Services Authority recently put forward new regulations designed to protect those mortgage holders that have fallen into arrears. The FSA has stated that the measure are an attempt to ensure that mortgage borrowers are  fairly treated – particularly if they have borrowed through specialist lenders in the hopes of receiving a quality bad credit mortgage. The Authority aims to make sure that any repossession act is taken as a very last resort, and also that mortgage borrowers facing arrears do not face any extraneous and unfair charges.

The Council of Mortgage Lenders, however, responded by referring to one of the Association’s proposals as ‘heavy-handed’, despite the fact that the FSA’s determination to review the current working methods of the mortgage market, as well as underlining the standards and criteria that all mortgage lending firms must meet. The measures are aimed at ensuring that all homeowners in difficulties are treated fairly, according to  the FSA’s Lesley Titcomb. The proposals are also aimed at underscoring the obligations of lenders to their customers – especially those facing financial difficulties – and that lenders do not and should not afford lenders an opportunity to make further profits.

Figures from the FSA indicate that, as of the end of September last year, there were just under 195,000 mortgages in arrears, and all were in arrears by 2.5% or more of their outstanding balance. The FSA had also earlier in the year commented on the aggressive attitude of some lenders towards their borrowers that were in arrears, stating that it was a definite problem. The Authority stated that they uncovered a high number of mortgages being pushed straight to arrears, indicating possible breaches of the rules of responsible lending. As a result they proposed that firms should not put additional early repayment charges on top of any arrears charges, and that they must not apply a monthly arrears charge if both the lender and customer have agreed upon a strategy and time-scale for repayment of arrears.

They also proposed that repossession should only be used as a last resort when all other options and possible measures have been exhausted, and that payments made by borrowers in difficulties  should first go towards clearing the arrears, particularly for those with commercial mortgages, leaving arrears charges to be paid at a later point. They further proposed that all telephone correspondence and records regarding borrowers’ arrears should be held for three years. The plans were warmly welcomed by the Citizens Advice Bureau.