UK financial watchdog cautions lenders over behaviour to borrowers in arrears

On Thursday, the UK Financial Conduct Authority (FCA) told mortgage lenders that is may take regulatory action against them if they fail to adhere to guidelines on how to treat borrowers with long-term arrears on home loans.

The City watchdog said that despite the number of homes being repossessed declining, the number of borrowers in long-term arrears was increasing. This widening trend led the FCA to review numerous arrears cases at banks, building societies and other lenders, with the regulator discovering some ‘disappointing’ lending practices.

Lenders fail to prevent harm to borrowers

Under the regulator’s guidance on arrears management, lenders are expected to make ‘reasonable efforts’ to help borrowers in long-term arrears for a year or more in agreeing repayment terms, with repossession seen as a last resort.

However, after the FCA had concluded its oversight of arrears cases it found ‘some inconsistencies in firms’ arrears management practices’ with vulnerable borrowers, particularly those on high interest mortgages, not receiving necessary support.

The FCA said that it has provided feedback to lenders it reviewed ‘and is considering where in some cases further regulatory action is necessary’.

FCA warns borrowers to not bury their heads

The regulator added that their findings were conducted against a backdrop of low-interest rates, making the arrears balances relatively low and stressed that borrowers already in arrears, and even those worried about falling into them, should act now.

'We know that many customers remain hesitant to contact their lender to discuss their mortgage arrears for a variety of reasons,’ Executive Director of Supervision at the FCA Jonathan Davidson said.

‘We encourage customers to talk to their lender as early as possible as this may give them more time and options when it comes to the steps they can take.’

‘The FCA encourages customers with arrears to engage with their mortgage provider about mortgage arrears and the options that are available to them,’ he added.