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.
The cases we see involving mortgage arrears and hardship typically include the consumer complaining about:
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:
We may need to ask the consumer to provide more information about their general financial situation, to help us to consider the complaint.
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:
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:
Steps that a lender might take as part of treating the consumer fairly might include, for example:
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:
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:
Some examples of cases where we decided it was not fair for the lender to apply arrears charges include:
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.
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.
Consumers sometimes complain that the lender has sought possession unnecessarily - or too quickly. In these cases, we consider whether the lender:
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:
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:
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.
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:
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:
Complaints involving shortfall debts are very individual - and so outcomes will vary. But we may decide, for example, that:
contact our technical advice desk on 020 7964 1400