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mortgage arrears and hardship

This section of our website describes how we approach cases where a consumer has had difficulty paying their residential mortgage - and arrears have built up as a result.


When a consumer is unable to make their full monthly mortgage payment, the mortgage account falls into arrears. Because part of the monthly repayment is to cover interest that falls due, the mortgage balance will increase and that leads to more interest being charged on the loan.

Some lenders make administration charges where the mortgage account is in arrears, which are added to the balance and will also attract interest. The consumer may fear losing their home and may be very anxious when they bring their complaint to us.

This note explains how we approach cases where a lender has taken steps to deal with a consumer who has fallen behind with paying their mortgage.

what types of cases do we see?

The cases we see involving mortgage arrears and hardship typically include the consumer complaining about:

  • difficulties they are having in meeting their mortgage payments;
  • charges added to the balance of the mortgage;
  • legal action for possession taken by the lender; and
  • costs incurred, or the price obtained for the property, where a lender has taken possession.

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how do we approach these cases?

In the cases we see, difficulties usually arise because the consumer finds they cannot meet the mortgage payment - often because of illness, unemployment or short time working, or family difficulties such as relationship breakdown.

Consumers do not always tell us that they are experiencing financial difficulty, and may just say that they are in dispute with a lender. But we are often able to see, from the information they have provided, that they are in financial hardship - particularly where, for example, the complaint is about:

  • arrears and/or arrears charges;
  • being unable to agree a payment plan with the lender;
  • having difficulty in making payments; or
  • unsympathetic responses from the lender or its agents.

We may need to ask the consumer to provide more information about their general financial situation, to help us to consider the complaint.

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what can we do?

We can deal with complaints about any type of mortgage loan, provided the lender (and the type of mortgage loan) is one that we cover.

We are not able to stop court proceedings that have been brought by the lender. But we may ask a lender whether it is willing to delay proceedings while we consider the complaint.

If a lender has already started possession proceedings, we encourage consumers to talk to the lender and seek independent advice about how to deal with the proceedings. This is because we cannot provide this type of help and cannot advise about court proceedings. Sources of free independent advice include:

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handling of arrears

When we consider a complaint about how a lender dealt with a consumer in arrears, we take into account the relevant rules - such as the Financial Services Authority's Mortgage Conduct of Business Rules - and good industry practice at the time the events complained about took place.

In general terms, mortgage lenders must treat customers in arrears fairly. What is fair will normally depend on the individual circumstances of the case.

Lenders will normally be expected to:

  • handle matters sympathetically;
  • make reasonable efforts to reach agreement with the consumer about how the arrears should be paid;
  • make sure any proposed repayment plan is realistic;
  • liaise with any third party acting on the consumer's behalf - for example, a Citizens Advice Bureau;
  • provide the consumer with an explanation, if they do not accept the consumer's own repayment proposals; and
  • seek possession of the property only as a last resort.

Steps that a lender might take as part of treating the consumer fairly might include, for example:

  • adding the arrears to the mortgage balance (sometimes called capitalisation);
  • extending the term of the mortgage;
  • accepting interest-only repayments for a period of time;
  • accepting part-repayments for a period of time; and
  • allowing a "payment holiday" to tide the consumer over a short-term problem.

Consumers often tell us that they have difficulty getting information from the lender about what is happening on their mortgage account - or cannot get a proper response from the lender to their proposals. We would look to see whether the lender had communicated effectively with the consumer, providing information when requested to do so and responding promptly and appropriately to payment proposals made by the consumer.

We have upheld complaints where we found the lender had acted unfairly or unreasonably, for example by:

  • refusing to agree a payment arrangement without a suspended order for possession;
  • refusing to consider a repayment proposal that falls outside its "standard" requirements;
  • at a payment arrangement review, insisting on an increase in the rate of repayment of the arrears - even though the consumer's financial circumstances have not changed;
  • repeatedly applying unpaid payment charges where it is clear that a payment arrangement is needed; or
  • refusing to deal with a third party adviser.

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arrears charges

Consumers sometimes find information about charges difficult to understand and ask us to tell them whether the charges are correct. Consumers also worry that the lender might be profiting from their difficulties by increasing their indebtedness with charges.

When considering complaints about arrears charges, we take into account, for example:

  • the terms of the mortgage agreement;
  • any relevant law (for example, the Unfair Terms in Consumer Contracts Regulations); and
  • whether the lender has acted fairly in applying the charges in the particular circumstances of the case (for example, were the charges such that the consumer would never realistically be able to clear the arrears).

Some examples of cases where we decided it was not fair for the lender to apply arrears charges include:

  • where the consumer had fallen into arrears after developing a debilitating illness, with no prospect of returning to work; and
  • where the consumer had kept to the agreed repayment arrangement each month, but the lender had still continued to apply monthly arrears charges.

We have also seen some cases where we found that arrears administration work had been unfairly duplicated - for example, where a lender makes it own administration charge and also applies a charge for administration by its solicitors. In that situation, we would find that the consumer should not be made to pay for the duplication.

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concessionary interest rates and switching to interest-only payments

Decisions about whether (and if so to what extent) the lender is willing to reduce the contractual interest rate on a mortgage account are normally a matter for the lender - and provided that the lender acts fairly, we would not usually intervene.

However, we would expect a lender to take proper account of the consumer's financial circumstances when considering requests for interest concessions or interest-only payments.

In some cases we see, a fair outcome is that the lender agrees to some form of concession for a set period of time - with a review date to reconsider matters again.

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possession and sale

Consumers sometimes complain that the lender has sought possession unnecessarily - or too quickly. In these cases, we consider whether the lender:

  • communicated properly with the consumer about the arrears;
  • considered all reasonable alternatives to possession;
  • ensured that the consumer was kept informed about what was happening - and about their options

We do not have any power to review or overturn a court order. So where a court has considered an application for possession by a lender and has agreed to it, we will not normally be able to consider a complaint that possession should not have been sought or given.

Where a property is taken into possession, the lender must take reasonable steps to get the best price it can at the time. Any costs and expenses debited to the mortgage account should be fairly and necessarily incurred. In complaints we see, we have required the lender to show, for example, that:

  • it obtained proper valuations of the property before marketing it;
  • there was no unreasonable administrative delay on its part;
  • it kept the consumer informed about what would happen - and responded to questions in a sensitive and timely way;
  • it took reasonable steps to arrange for removal by the consumer of any personal items left at the property;
  • it took reasonable steps to keep the property safe - and to avoid unnecessary deterioration of the property during the time it was in possession of it;
  • the property was actively marketed through appropriate agents to obtain the best price;
  • auction was only considered if more traditional approaches to marketing had failed to attract a buyer; and
  • costs passed on to the borrower were for necessary work, were reasonable, and could be backed up with estimates and invoices.

Where we consider that the lender did not deal correctly with the consumer or with the property, we will assess suitable compensation for that. That might include, for example:

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early repayment charges

We sometimes see cases where a consumer sells a property while possession proceedings are either pending or ongoing - and the lender applies an early repayment charge. There is more information about our approach to complaints about these charges in our technical note on mortgages: early repayment charges.

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shortfall debt

There may be a shortfall debt after the property is sold. This usually happens when the sale of the property did not generate enough money to clear the total debt owed under the mortgage, including associated costs. Lenders may sometimes wait before contacting the consumer to ask for repayment of the shortfall.

In the complaints we see, consumers sometimes say that:

  • it was not made clear to them that they would be liable for the shortfall; or
  • they thought the lender had decided not to ask them to pay, because no one had contacted them earlier.

When we look at complaints about shortfall debts, we consider whether the lender acted fairly and reasonably in pursuing the consumer. We take into account the relevant regulatory rules and industry guidance and will consider, for example:

  • what the lender told the consumer about the shortfall debt, when the property sale first went through;
  • whether the consumer had taken reasonable steps to provide the lender with a new address;
  • how much time elapsed before the lender first contacted the consumer about the shortfall debt;
  • whether the consumer had changed their position before they could reasonably have known that the lender expected them to pay the shortfall;
  • how the lender had gone about pursuing the debt (including the actions of any debt collectors it employed); and
  • whether the lender had taken proper account of the consumer's financial circumstances when assessing how much of the shortfall it required them to repay.

Complaints involving shortfall debts are very individual - and so outcomes will vary. But we may decide, for example, that:

  • the consumer must pay the whole of the shortfall;
  • the consumer must pay the whole of the shortfall - but should also receive some compensation for distress and inconvenience caused by the way the lender dealt with them;
  • the consumer must pay only part of the shortfall; or
  • the consumer need not pay any of the shortfall.

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other information we have published

help for businesses and consumer advisers

contact our technical advice desk on 020 7964 1400

image: house for sale
  • The law requires us to decide each case on the basis of our existing powers and what is fair in the circumstances of that particular case.
    We take into account the law, regulators' rules and guidance, relevant codes and good industry practice at the relevant time.
    We do not have power to make rules for financial businesses.
    Our current approach may develop in the light of circumstances disclosed by further cases we receive.
    We may decide that fairness requires a different approach in a particular case.