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Steps before action

This content applies to England & Wales

The steps lenders will usually take before commencing court action.

Institutional lenders such as banks and building societies make money out of mortgages. Such lenders usually do not want to gain possession of a property, but use the possession procedure to force the borrower to resume payments, only taking possession as the last resort.

Pre-action protocol

The Pre-action Protocol for Possession Claims based on Mortgage Arrears sets out steps that lenders and borrowers should take to ensure that court proceedings are a matter of last resort. These steps are explained in detail on the page on the Pre-action protocol for mortgage arrears. The pre-action protocol applies to first and second charge loans, and unregulated mortgages.

FCA Regulation

The Financial Conduct Authority (FCA) Handbook, Mortgage Conduct of Business (MCOB) 13: Arrears and possessions, specifies that a regulated credit mortgage (RMC) lender must:

  • provide a customer who has fallen into arrears, in writing, within 15 business days of becoming aware of the fact, with full details of the missed payments, any charges incurred as a result of the shortfall, the total amount due and the charges that will be incurred if the shortfall is not cleared, as well as a copy of the current Money Advice Service information sheet 'Problems paying your mortgage'[1]
  • not put pressure on a customer through excessive telephone calls or correspondence, or by contact at an unreasonable hour[2] (a reasonable hour will usually be between 8am and 9pm)
  • make 'reasonable efforts' to reach an agreement with a customer over the method of repaying any payment shortfall or sale shortfall[3]
  • allow a 'reasonable time' for repayment of the shortfall, establishing a payment plan that is feasible given the circumstances of the customer[4]
  • make the customer aware of any relevant government schemes to assist borrowers in payment difficulties[5]
  • not repossess the property unless all other reasonable attempts to resolve the situation have failed[6]
  • make the customer aware of the steps that will be taken in relation to repossession.[7]

Second-charge mortgages to consumers (such as for debt consolidation or home improvement) have also been regulated by the FCA, but as regulated credit agreements under the Consumer Credit regime - see Guidance on credit-related regulated activities. From 21 March 2016 these are regulated in the same way as first-charge mortgage contracts under MCOB rules, with the addition of some rules under the Consumer Credit Act 1974 which are retained (for example, prohibition on interest being increased on default under s.93, and the right to complete payment before the end of the mortgage term under s.94). There are various transitional provisions.[8]

Buy-to-let mortgages to consumers (defined as 'persons who act for purposes which are outside their trade, business, or profession') have been subject to the FCA regulation from 21 March 2016.[9] Firms wishing to lend, administer, intermediate, arrange or provide advisory services in relation to consumer buy-to-let (CBTL) must be registered by the FCA and the Financial Ombudsman Service's jurisdiction will cover CBTL business.

FCA Guidance on credit-related regulated activities specifies steps that lenders should take before taking possession action in relation to a second charge loan to which the new rules which came into force on 21 March 2016 do not apply (see the page on Second charge loans for details).

Different options for dealing with mortgage payment problems are discussed in detail in the section on Mortgage arrears: payment problems.

[1] FCA, MCOB 13.4.1.

[2] FCA, MCOB 13.5.3.

[3] FCA, MCOB 13.3.2A(1).

[4] FCA, MCOB 13.3.2A(1).

[5] FCA, MCOB 13.3.4B.

[6] FCA, MCOB 13.3.2A(6).

[7] FCA, MCOB 13.4.5(3).

[8] see Part 4 Mortgage Credit Directive Order 2015 SI 2015/910, as amended.

[9] see Part 3 Mortgage Credit Directive Order 2015 SI 2015/910, as amended.

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