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ombudsman news

issue 103

June/July 2012

mortgages - arrears and hardship

People are often anxious and emotional when they bring us a problem relating to mortgage arrears and hardship. These cases are among the most distressing that we see for a consumer, with fear of losing their home at the forefront of their mind. Our approach - outlined in our online technical resource on mortgage arrears and hardship - is always to look carefully at the evidence and weigh up the facts of the case.

When a consumer experiences financial difficulty and contacts their mortgage lender, the lender is required to treat them sympathetically - and to make reasonable attempts to agree a repayment plan with them. This means a lender relies on their customer communicating openly with them and providing information when it is requested. Many problems are resolved successfully this way.

However, sometimes things go wrong. The case studies that follow illustrate some of the most common difficulties we see. These include:

  • arrears and arrears charges;
  • problems relating to repossession;
  • a lender's refusal to change a mortgage to interest-only;
  • problems arising because communication between lender and consumer has broken down.

issue 103 index of case studies

  • 103/4 - complaint about lender's treatment of consumers in financial difficulty
  • 103/5 - consumers refuse to give lender information - then complain they have not been treated fairly
  • 103/6 - complaint about lender refusing to change a mortgage to interest-only
  • 103/7 - consumer in financial difficulty complains about excessive fees charged by her lender
  • 103/8 - consumer in arrears complains about charges applied by lender
  • 103/9 - complaint about lender taking legal action and applying charges without warning
  • 103/10 - complaint about insufficient notice of property being repossessed
  • 103/11 - complaint relating to repossession of a property - and its subsequent sale at below market value
  • 103/12 - complaint about breach of confidentiality - and lender taking action without consumer's consent

103/4
complaint about lender's treatment of consumers in financial difficulty

Mr and Mrs C had a mortgage on their property. When Mr C was found guilty of misconduct at work and lost his job, they were unable to keep up their mortgage repayments. Their mortgage subsequently went into arrears.

Mr and Mrs C contacted their lender to discuss their circumstances. They offered to pay what they could afford each month. But the lender said it could not negotiate lower monthly repayments and could not stop their house being repossessed.

Mr and Mrs C complained to their lender, saying it wasn't doing enough to help them. They asked whether it would agree to a repayment holiday, or accept reduced repayments each month. Their lender said that it did not offer repayment holidays, and that their proposal to make reduced payments was not acceptable. The lender added that it considered Mr C largely responsible for the loss of his job - and because of that, full repayments must continue each month or arrears fees would apply.

Unhappy with this response, Mr and Mrs C referred their complaint to us.

complaint upheld

We reviewed the evidence provided by both sides. We were satisfied that Mr and Mrs C had kept their lender adequately informed about their financial position. Although the lender knew they were having problems, we could find no evidence to suggest that it had taken steps to help them. It had not entered into any meaningful discussions with Mr and Mrs C about their repayment proposals and had continued to apply its standard monthly arrears charge.

We also noted that the mortgage provider had used the circumstances of Mr C's dismissal as a reason for not giving the couple's proposal more serious consideration. We explained that a lender is required to treat a consumer fairly - regardless of the causes of their difficulties.

So we told the lender to contact Mr and Mrs C to obtain their income and expenditure details - and to agree a repayment plan with them. We told it to refund the arrears charges that were being disputed. We also told it to pay Mr and Mrs C £250 compensation for the distress and inconvenience it had caused them.

103/5
consumers refuse to give lender information - then complain they have not been treated fairly

Mr S and Miss L took out a loan secured on their house. Shortly afterwards, they took out another loan with the same lender - also secured on their house. A few years later, Mr S lost his job and could only find temporary employment on a much lower salary. This meant that Mr S and Miss L could not keep up their repayments.

When Mr S and Miss L contacted their lender to discuss the situation, it asked them to provide details of their finances. When they had supplied these details, their lender then asked some further questions. In the meantime, it agreed to accept significantly reduced payments for two months.

However, Mr S and Miss L refused to answer the new questions and the temporary repayment arrangement came to an end. As a result, the lender began to apply fees for handling the arrears on their account.

Mr S and Miss L complained to the lender, saying that it had not done enough to help them. When the lender rejected their complaint, they asked us to investigate.

complaint not upheld
We looked carefully at the details of the case. We were satisfied that the lender had tried to engage in meaningful discussions with Mr S and Miss L. We also took the view that it was reasonable for the lender to ask additional questions to get to the bottom of their financial situation.

Given that Mr S and Miss L had refused to answer these questions, we did not consider it unreasonable for the lender to have ended their temporary repayment arrangement.

Having listened to our view, Mr S and Miss L decided to provide the information that their lender had asked for - and were able to reach an acceptable way forward.

103/6
complaint about lender refusing to change a mortgage to interest-only

Mr N was a self-employed architect. In 2005, he and his wife took out a repayment mortgage for a term of 20 years. A few years later, Mr N lost his biggest client. This reduced his income and Mr and Mrs N were unable to make their regular mortgage repayments.

Mr and Mrs N asked their lender if they could add their arrears to the mortgage - a process known as "capitalisation". They also asked to switch permanently to an interest-only mortgage. The lender agreed to capitalise their arrears. But it refused to change their mortgage to interest-only because Mr and Mrs N did not meet the required criteria.

Mr and Mrs N continued to struggle and ended up behind with their mortgage payments. They decided they had no choice but to sell the property. However, they complained to their lender that they would not have been in this position had it agreed to switch their mortgage to interest-only. The lender responded, saying that it had done all it could for them. This had included accepting token payments from them until the property could be sold.

Mr and Mrs N referred their case to us.

complaint not upheld
We listened to the arguments put to us by both sides and looked carefully at the evidence. This included Mr and Mrs N's repayment history. We concluded that even if Mr and Mrs N's mortgage had been changed from repayment to interest-only, it was still unlikely that they would have been able to keep up their repayments.

We also considered the question of how the mortgage would ultimately be repaid - because Mr and Mrs N had seen an interest-only mortgage as a long term option.

We pointed out that the lender was required to treat Mr and Mrs N fairly, but that it was not obliged to agree to their request to change their mortgage. So, taking into account how the lender had behaved - including its agreement to capitalise the arrears and to accept token payments until the property could be sold - we decided that it had not acted unfairly. We did not uphold the complaint.

103/7
consumer in financial difficulty complains about excessive fees charged by her lender

A few years after Miss T took out a mortgage, she fell ill and had to reduce her hours at work. Because of her reduced income, Miss T missed a number of her monthly mortgage repayments and incurred "arrears management" fees.

When Miss T's health improved and she could increase her working hours, she started making repayments again. However, she could not afford to make any payments towards the arrears balance. Her lender accepted this, but continued to add fees to her account. Soon afterwards, the lender appointed a solicitor to begin legal proceedings - and started adding monthly "litigation fees" to Miss T's account.

Miss T became increasingly concerned about the fees and contacted her lender to discuss the situation. As a result of this, she was able to agree a repayment plan with the lender. However, Miss T complained about how her mortgage provider had treated her. She said that the application of more and more charges to her account had made things worse. In its response, the lender told Miss T that the fees had been applied correctly "in line with its published tariff". Unhappy with this response, Miss T referred the matter to us.

complaint upheld
Having reviewed the evidence, we took the view  that the lender could have agreed a repayment arrangement with Miss T much sooner. We pointed out that its decision to keep adding charges had made her financial position worse than it had needed to be. In fact, we noted that by the time the mortgage provider and Miss T had reached an agreement, a significant proportion of the arrears balance was made up of fees.

In light of this, we were not satisfied that the lender had treated Miss T fairly. So we told it to refund the fees it had added - from the point at which it had accepted that Miss T could not afford to make any payments towards the arrears balance. We also told it to pay Miss T £200 compensation for the distress and inconvenience it had caused her.

103/8
consumer in arrears complains about charges applied by lender

Mr W, a self-employed minicab driver, wanted to make some improvements to his home. He took out a loan secured on his house to pay for the work. A few years later, Mr W found that business was slowing down, and he was having difficulty covering his monthly repayments.

Mr W's lender contacted him. It said that if he was experiencing financial difficulty, he should provide details of his income and expenditure so that they could agree a reduced repayment plan. The lender heard nothing back from Mr W, even though it tried to contact him a number of times over the next few months.

When the lender eventually managed to get in touch with Mr W, he provided his income and expenditure details and they agreed a repayment plan. In the meantime, however, the lender had started to apply monthly "arrears management" fees to Mr W's account.

Mr W complained to the lender that the fees were unfair and should be removed. The lender refused. It told Mr W that the fact he was in arrears - and that he had not responded to its requests for information - had meant that it had been required to carry out extra work on his account. Mr W was unhappy with this response, and referred the matter to us for investigation.

complaint not upheld
We looked carefully at the situation from both perspectives and examined the evidence - including Mr W's account statements. We noted that the lender had reviewed his income and expenditure details as soon as he had provided them - and had then agreed an appropriate repayment plan with him. The lender's records also confirmed that it had carried out extra work on his account.

Under the circumstances, we were satisfied that the lender had treated Mr W fairly, and that it was not required to refund the charges it had applied.

However, because Mr W told us that he was also behind with some other debts, we put him in touch with a free debt counselling agency - who would be able to offer him some advice on his financial situation more generally.

103/9
complaint about lender taking legal action and applying charges without warning

Mr and Mrs E had taken out a mortgage to buy their house. They decided to carry out some building work and took out a "second-charge" loan - secured on their property - with a different lender. Two years later, following relationship difficulties, they began to struggle financially and fell behind with their repayments.

Their loan provider obtained an "order for possession" from the court. However, it held off from doing anything further because they had just made some payments towards their account. Unfortunately, Mr and Mrs E made no further payments because they could not agree how much each should pay. They were eventually evicted from the property under the court order.

The house was then sold in order to pay off both the mortgage and the second-charge loan. But after the mortgage was paid off, there was a shortfall in the amount required to pay off the loan.

Mr and Mrs E subsequently complained about how the loan provider had treated them. They said that the legal action had come "out of the blue" and that they had no hope of keeping on top of the arrears with all the fees and charges applied to their account. The loan provider responded, saying that it had "complied with the law" and that it had applied the fees "in accordance with its published tariff".

Unhappy with that response, Mr and Mrs E referred their complaint to us.

complaint upheld
Having reviewed the information provided by both sides, we were not satisfied that the loan provider had treated Mr and Mrs E fairly. We did not see any evidence that it had attempted to discuss their finances with them or taken steps to agree a repayment plan.

We also noted that the lender had been charging "arrears management" fees to cover the extra work it had been required to carry out. But it had continued to charge these fees even after it had referred the account to its solicitors - who were applying their own separate charges. So we asked the lender to show us a breakdown of the work done by its solicitors. When it was unable to, we concluded that the fees could not be justified.

We told the loan provider to refund arrears fees of £500. In addition, the loan provider offered to write off half the amount outstanding on the second-charge loan. Mr and Mrs E accepted this. We also told the loan provider to put in place a repayment plan that would help them get their finances back on track.

103/10
complaint about insufficient notice of property being repossessed

Mrs D was a property developer. She took out a mortgage to buy a large residential property. The property was sold with some outbuildings. Mrs D intended to convert the main property into four self-contained flats - and to live in one of them herself.

Over the next few years, Mrs D worked on developing the property. However, the project was becoming more costly than she had expected. She began to run out of money and stopped making her mortgage repayments. Instead, she put the money towards completing the project - hoping that she would be able to sell the flats sooner.

Mrs D's lender tried to contact her several times to discuss the missed payments. When she did not reply, it decided to take legal action. The court granted an "order for possession" and Mrs D was eventually evicted from the property.

Mrs D subsequently complained to her lender. She said it had taken possession of parts of the property - including the separate outbuildings - that it was not entitled to. She also said that she was not given enough notice to remove her belongings from the property. The lender disagreed, saying it had acted correctly. Mrs D decided to refer her complaint to us.

complaint not upheld
We explained to Mrs D that we were only able to consider the actions of her lender during the run-up to the legal proceedings - and that we could not reopen the issues that had already been considered by the court. The court had been satisfied that the mortgage covered the outbuildings. We explained to Mrs D that if she wanted to challenge the court's decision on this, she would need to refer it back to the court.

We looked carefully at the evidence to determine whether the lender had been entitled to begin legal action against Mrs D when she stopped making her mortgage repayments. This evidence included the terms and conditions of her mortgage and the court order for possession. Having examined the evidence, we concluded that the mortgage provider had been entitled to begin legal action.

We also concluded that the lender had given Mrs D sufficient notice to remove her belongings from the property. In fact, we found that several orders for possession had been granted and subsequently not applied - which had given Mrs D even more time to remove her belongings.

In these circumstances, we did not uphold the case.

103/11
complaint relating to repossession of a property - and its subsequent sale at below market value

Mr J took out a mortgage to buy a bungalow. A few years later, he decided to move out to live with his new partner. When he moved out, he did not contact his lender to give them his new address. He also left some of his furniture and belongings in the bungalow.

A few months later, Mr J began to experience financial difficulty and decided to sell the bungalow. While it was on the market, he began to fall behind with his monthly repayments and arrears began to build up on his account. Mr J's lender tried to contact him about the arrears. But when it could not get in touch with him, it began legal action. By the time Mr J became aware of this, proceedings were already well under way.

The lender eventually repossessed the property, which it went on to sell. Mr J complained to the lender. He pointed out that higher offers had been made on the bungalow, which the lender had not accepted. He also said that his furniture and belongings had gone missing. When the lender rejected his complaint, Mr J referred the matter to us.

complaint upheld in part
We carefully reviewed the evidence relevant to the case - including information from the estate agent appointed by the lender to sell the bungalow. This showed that there had been some offers made on the bungalow that were higher than the final sale price.

When we asked the lender about these offers, it said it had not been told about them - and it could not explain why they had not been pursued. We took the view that the estate agent was acting as the agent of the lender - and that the lender had therefore failed to obtain the best purchase price that had been reasonably available.

But we did not consider that the lender was liable for Mr J's missing belongings. After all, Mr J could have removed them from the property when he first became aware of the legal proceedings. And the lender had sent him further reminders to clear the bungalow before the sale was eventually agreed.

We therefore upheld the complaint in part. We told the lender to pay Mr J £3,000 - the difference between the highest offer that had been made on the property and the final sale price.

103/12
complaint about breach of confidentiality - and lender taking action without consumer's consent

Mr and Mrs P were separated, but owned a house together. Neither Mr nor Mrs P lived in the property - but were still joint borrowers under the terms of their mortgage. Mrs P continued to pay her share of the repayments. But when Mr P was made redundant, he was unable to pay his share. This meant that arrears built up, and the lender contacted each of them to discuss their options for repayment.

The lender was unable to get in touch with Mr P, but spoke to Mrs P several times. Following these discussions, the lender decided to add the arrears onto their mortgage account - a process known as "capitalisation". This would prevent further arrears fees being added to the account. However, problems with their repayments continued, and the lender eventually took possession of the property. The house was then sold, and the finances sorted out.

Mr P later complained to the lender that it had breached his confidentiality by giving Mrs P his new address. He was also unhappy that it had capitalised the arrears without his consent and discussed the account on the phone with "a third party". The lender rejected his complaint, and the matter was referred to us for investigation.

complaint not upheld
We considered the evidence relevant to the case - including recordings of phone calls during which the problems were discussed. From the evidence, we saw no instances of the lender disclosing Mr P's new address to Mrs P - nor any other breaches of confidentiality.

As far as the discussions with the "third party" were concerned, we found that the lender had discussed the account only with Mrs P or with Mr P himself.

So we spoke to Mr P and established that by a "third party", he had in fact meant Mrs P. We explained to him that the fact they were joint borrowers meant that the lender was entitled to discuss the account with either borrower.

We also looked into his concern that the arrears had been capitalised without his consent. Our investigations showed that neither he nor Mrs P had given their consent to this. However, we concluded that neither of them had been disadvantaged financially by the arrears being capitalised. In fact, it had prevented further charges from being applied to their account.

We therefore did not uphold the complaint.