FSA proposes stronger mortgage arrears rules

Borrowers who fall behind on their mortgage repayments must be treated more fairly, under proposals set out today by the City watchdog. The Financial Services Authority (FSA) said it planned to strengthen existing rules governing the way lenders handle mortgages that have fallen into arrears after its research showed some were charging unacceptably high fees and moving too quickly to repossess properties. The biggest problems were in the specialist lending sector, where some sub-prime and buy-to-let lenders have been adding huge fees to mortgage accounts already in debt. Some have continued to charge up to £50 a month, even after the borrower has entered an arrangement to repay the debt. The proposals are part of the FSA's ongoing Mortgage Market Review, which it launched last year. A consultation paper published today proposes: • Firms should consider all options for borrowers and make sure repossession is always the last resort. • A clarification that firms must not apply a monthly arrears charge if the customer has entered an arrangement to repay the arrears. • To make it clear to lenders they must not include arrears charges when calculating a borrower's early repayment charge. • To make sure payments by customers in financial difficulties are allocated to clearing the missed monthly payments first, rather than to arrears charges. • Firms be obliged to record all arrears-handling telephone calls and to keep all records for three years. Lesley Titcomb, the FSA director responsible for the mortgage sector, said: "Today's proposals underline the standards that firms must meet and will help to ensure that homeowners in financial difficulties are treated fairly. "Lenders need to be in no doubt of their obligations to customers who fall behind with payments, and must realise that such circumstances are not an opportunity to create further profits." The review also includes proposals to make all mortgage advisers individually accountable to the FSA, a move which it said would "remove dishonest individuals from the industry and … keep them out". Aggresive charges Figures published by the FSA in December showed that by the end of September last year 395,000 mortgage accounts were in arrears. Although specialist lenders appear to be the most aggressive when it comes to charging arrears fees, many mainstream banks also levy high charges. Abbey, for example, levies an arrears charge of £40 a month and will charge up to £79.90 for a debt collector to visit your home, while Halifax charges £35 for each missed payment. Hannah-Mercedes Skenfield, mortgages manager at price comparison site moneysupermarket.com , welcomed the proposals. "The measures announced today will spell the end of charging for what should have been free advice, allocating payments to pay off arrears charges rather than monthly repayments, and charging over the odds for administration fees; practices which were not only unfair, but also detrimental to the stability of the mortgage market as a whole, as those in arrears were forced into further financial troubles," she said. "However, while these changes are good news for those in difficulty at present, they won't open the door for those who have already faced charges to claim refunds. Anyone who feels they have been treated unfairly by their mortgage lender in relation to mortgage charges should first contact their lender and then, if they aren't satisfied with the outcome, the Financial Ombudsman Service ."