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Pre-action Protocol for Mortgage Arrears

This content applies to England & Wales

The pre-action protocol covering the appropriate procedure that lenders should follow before repossessing a homeowner who has mortgage or purchase plan arrears over a residential property.

Introduction

The aims of the Pre-action Protocol for Possession Claims based on Mortgage or Home Purchase Plan Arrears in respect of Residential Property is to:

  • ensure the lender and borrower act fairly and reasonably with each other in resolving any matters concerning arrears
  • encourage greater pre-action contact in order to reach an agreement out-of-court, or when an agreement cannot be reached, enable efficient use of the court's time and resources
  • encourage lenders to check who is in occupation of the property before issuing possession proceedings.

Communications and provision of information

The protocol requires that any communications and provision of information between the lender and the borrower should be made in a way that is clear, fair and not misleading. If the lender is aware that the borrower may have difficulties in reading or understanding the information provided, the lender should take reasonable steps to ensure that information is communicated in a way that the borrower can understand.

Possession claims as last resort

Starting a repossession claim should be a lender's last resort. Possession proceedings must not normally be started unless all other reasonable attempts to resolve the situation have failed. 

Discussions between lender and borrower should consider the possibility of:

  • extending the term of the mortgage
  • changing the type of mortgage
  • deferring the payment of interest
  • capitalising the arrears, ie adding the arrears to the outstanding mortgage
  • using any government forbearance initiatives in which the lender participate.

Scope

The protocol applies to arrears on:

  • first charge residential mortgages and home purchase plans regulated by the Financial Conduct Authority
  • second charge mortgages over residential property and other secured loans regulated under the Consumer Credit Act 1974
  • unregulated mortgages.

This protocol came into effect on 6 April 2015. It does not apply to buy-to-let mortgages. Where a potential claim includes a money and a possession claim, this protocol applies to both.

Initial contact

Where a borrower falls into arrears, the lender must provide the borrower with:

  • where appropriate, the required regulatory information sheet or the National Homelessness Advice Service (NHAS) leaflet on mortgage arrears
  • information on the current monthly instalments and the amounts paid for the last two years, and
  • information on the amount of arrears, which should include:
    • the total amount of the arrears
    • the total outstanding of the mortgage or the home purchase plan, and
    • whether interest or charges have been or will be added, and, where appropriate, details or an estimate of the interest or charges that may be payable.

Further initial steps

The other steps a lender should take prior to issuing a claim for possession include:

  • advise the borrower to contact the local authority housing department
  • refer the borrower to appropriate sources of independent debt advice when necessary
  • take steps to discuss the reason the borrower is in arrears, whether the situation is temporary or long term, and her/his financial circumstances
  • consider reasonable requests to vary the regular date of payment or method of payment
  • discuss proposals for repayments of the arrears, give reasons in writing within 10 days if a borrower's proposals are not accepted, and allow a borrower reasonable time to consider any proposal made by the lender
  • if the borrower does not keep to any agreement, the lender should give her/him 15 working days' notice in writing of its intention to issue a claim for possession.

Tenants in occupation

The lender should seek information about whether the property is occupied by an authorised tenant.

If at the possession hearing there is an authorised tenant in occupation of the property, the court will consider whether:

  • to issue further directions
  • to adjourn the possession claim until possession of the property is recovered from the tenant, or
  • to make a possession order conditional upon the tenant's right of occupation.

See the section on Tenants of mortgagors for more information about when a tenancy is binding on the lender.

Postponing legal action

A lender must not consider starting a possession claim where the borrower can demonstrate that s/he has–

  • submitted a claim, and has provided all the evidence required to process the claim, to:
    • the Department for Works and Pensions ('DWP') for Support for Mortgage Interest (SMI) or Universal Credit
    • an insurer under a mortgage payment protection policy, or
    • a participating local authority for support under a Mortgage Rescue Scheme, or other means of homelessness prevention support provided by the local authority
  • a reasonable expectation of eligibility for payment from the DWP or from an insurer or support from the local authority or welfare or charitable organisation such as the Veterans Welfare Scheme or Royal British Legion
  • an ability to pay a mortgage instalment not covered by a claim to the DWP or the insurer
  • difficulty in respect of affordability or another specific personal or financial difficulty, and requires time to seek free independent debt advice, or has a confirmed appointment with a debt adviser, and
  • a reasonable expectation, providing evidence where possible, of an improvement in her/his financial circumstances in the foreseeable future (for example, a new job or increased income from a lodger).

The lender should also consider postponing the starting of possession action where the borrower can demonstrate that s/he:

  • has made a genuine complaint to the Financial Services Ombudsman (FSO) regarding the potential possession claim
  • is taking active steps to market the property at an appropriate price.

Postponement pending voluntary sale

If the lender postpones a possession claim pending the sale of the property the borrower should provide the lender with:

  • details of offers received
  • copy of the particulars of sale
  • copy of the energy performance certificate (EPC) or proof that one has been commissioned
  • details of their estate agent and conveyancer. The borrower should also authorise the estate agent and conveyancer to communicate with the lender regarding the progress of any sale.

If the lender refuses to postpone legal action it should give its reasons at least five working days before it starts proceedings.

Compliance and sanctions

The lender and borrower may be required by the court to explain how they have complied with the protocol. From 1 October 2009, lenders must demonstrate compliance with the protocol by presenting two copies of Form N123 - Mortgage pre-action protocol checklist at the court hearing.

Adjournment

There are no explicit sanctions for non-compliance but the court may use its general powers[1] to adjourn the hearing if the lender has not complied with the protocol.

Cost orders

In cases of refusals of offers to settle, the court can order the defendant to pay the claimant an additional amount of award, if:[2]

  • the defendant did not accept the claimant's offer to settle, and
  • the court subsequently gave judgment for the claimant which was at least as advantageous as the offer.

Different prescribed amounts apply depending on whether the proceedings involve money claims only, both money and non-money claims, or non-money claims only.[3]

[1] r.26.4, Civil Procedure Rules SI 1998/3132 (as amended).

[2] s.55 Legal Aid, Sentencing and Punishment of Offenders Act 2012, in force since 1 October 2012 under art. 2(b) The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No. 2 and Specification of Commencement Date) Order 2012 SI 2012/2412.

[3] The Offers to Settle in Civil Proceedings Order 2013 SI 2013/93.

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