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Tactics for dealing with mortgage lenders

This content applies to England & Wales

Negotiating with lenders and ensuring compliance with pre-action protocol and MCOB rules.

First steps

Advisers should first establish the following:

  • what does the client want? Does s/he want to remain in the home or leave?
  • if s/he wants to stay, will s/he be able to pay off the arrears and maintain ongoing mortgage payments?
  • which of the lender's offices does s/he need to deal with? Different lenders deal with the administration of arrears in different ways.

It is almost always better for borrowers to discuss arrears with the lender sooner rather than later. Lenders are more likely to be sympathetic if the borrower takes a proactive role and suggests ways that s/he can clear or reduce the debt.

Pre-action protocol

The Pre-action Protocol for Possession Claims based on Mortgage Arrears sets out steps that the lender and borrower should take to avoid possession proceedings. The lender is specifically required to:

  • 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.

Non-compliance with the protocol may result in an adjournment of the possession hearing and/or an adverse costs order.

See the page Pre-action Protocol for Mortgage Arrears for more information.

MCOB rules

The Financial Conduct Authority (FCA) Mortgage Conduct of Business (MCOB) 13: Arrears and possessions specifies that a lender must make reasonable efforts to reach an agreement with the borrower over repaying any shortfall as alternative to taking possession proceedings.[1]

Lender's obligations

Each lender must have written policy and procedures for dealing with borrowers in mortgage arrears. However, there is no obligation on the lender to provide a copy to the borrower.[2]

The FCA regulations says that the lender must consider whether it is appropriate to do one or more of the following:[3]

  • extend the term of the mortgage
  • change the type of mortgage
  • defer payment of interest due
  • capitalise the arrears
  • make use of any government forbearance schemes that it has signed up to.

The lender must give the borrower adequate information to understand the implications of any proposed arrangement for paying off the arrears on the mortgage.

It should be noted that a lender's failure to comply with the FCA's regulations does not provide a defence to possession.[4]

If the lender does not follow the FCA rules, the borrower should complain in writing to the lender. The lender must send its final response to the complaint within eight weeks.[5]

If the borrower is not satisfied with the response, or the lender fails to respond within eight weeks, s/he can complain to the Financial Ombudsman Service.

For information about 'How to complain' see the FCA website. The FCA does not investigate individual complaints itself.

Borrower's proposals

The borrower should offer only what s/he can reasonably afford. S/he should concentrate on controlling the arrears and ask for concessions that will make the mortgage more manageable. It is important to continue to make regular payments to demonstrate to the lender that the situation is under control.

The borrower should put forward a series of proposals for the lender's consideration. These can be imaginative but must be realistic, because the lender will want the loan to be repaid within a reasonable period of time. Wherever possible the proposals should be put in writing. It is not always necessary to meet the lender's requirements with regard to minimum monthly payments. It is better to offer a realistic amount with potential for increased payments in the future than to offer a higher amount that cannot be sustained. Lenders should always be asked to confirm any agreements in writing.

[1] FCA Handbook, MCOB 13.3.2A.

[2] FCA Handbook, MCOB 13.3.1 and 13.3.3.

[3] FCA Handbook, MCOB 13.3.4A.

[4] Thakker & Anor v Northern Rock (asset Management) PLC [2014] EWHC 2107 (QB).

[5] FCA Handbook, DISP 1.6.

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