Mortgage arrears and charges
Types of complaint we see
We hear from people who complain that:
- their mortgage company hasn’t treated them fairly when they’ve fallen into difficulties
- they’ve had unfair charges applied to their account – like arrears fees, legal costs and field agent visit fees
- the lender wouldn’t agree to a concession they asked for, like a temporary switch to interest-only, or a term extension
- the lender is unfairly trying to repossess their house
- they can’t afford their payments and the mortgage company won’t help
- the lender is harassing them about their arrears
What we look at
We want to see whether you’ve treated your customer fairly. If your customer told you that they’re struggling, we’ll check that you’ve:
- responded fairly and constructively – as soon as they tell you
- taken your customer’s individual circumstances into account, rather than using a ‘one size fits all’ approach
When we decide if a charge is fair we’ll look at:
- whether you carried out any additional work in the months that charges were applied (and if so, what this was)
- whether your customer made any payments to the account while it was in arrears (and how big the payments were)
- the number of charges you’ve made and why you think they’re reasonable
- the level of engagement between you and your customer
- whether your customer’s situation is likely to improve
We’d expect the tariff of charges to set out how much you will charge for handling accounts in arrears. It’s reasonable for the charge to allow for your extra costs of managing the account, while it’s in arrears.
So, we wouldn’t normally say a charge was too high or that you weren’t entitled to apply it if the charge:
- was allowed within the terms and conditions of the mortgage
- was set out in the tariff of charges
- took into account your costs in dealing with accounts in arrears
But there may be circumstances that make us think it wasn’t fair for you to apply the charge, even though you were entitled to. So we’ll also ask the customer about:
- the cause of their financial difficulties
- their plans to get the mortgage back on track, and to think about whether or not that’s realistic
Putting things right
Here are some examples of concessions that might be appropriate, depending on the customer’s circumstances. In all cases, it’s important to listen to what your customers say, and to think about what’s the right way to try to assist them.
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In these circumstances, the customer changes job, and the date they are paid each month is now after the date the mortgage payment is due. This means they can’t make their payment on time.
You could change the payment date.
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Your customer knows they’re going to be off work for a few months, recovering from an operation. They know their income will reduce significantly during this time.
You could agree to a reduced payment plan, or change to interest-only repayment while the customer’s recovering. The shortfall will become agreed arrears and can be recorded on the consumer’s credit file. You can look at a payment plan for arrears once the customer is well. Usually, you should waive arrears fees during this time – as long as the customer keeps to any reduced payment arrangement.
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The customers’ relationship breaks down, and one of them moves out. The customer remaining in the house can’t afford the mortgage.
You could agree to a reduced payment plan or change to interest-only repayment – and refer the customer to a debt charity. The shortfall will become agreed arrears and is usually recorded on the customer’s credit file. You could also review the interest rate, or perhaps extend the term to see if that would make the mortgage affordable.
Ultimately, if the mortgage is no longer affordable the customer may need to sell the house.
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The customer loses their job, so the household income is significantly reduced.
You could agree to a reduced payment plan or change to interest-only repayment, reviewing the situation every few months. The shortfall will become agreed arrears, and this will normally be recorded on the consumer’s credit file.
If the customer doesn’t go back to work for some time, the level of arrears may mean that you have to think about repossessing the property.
If the customer is able to go back to work, you can look at a payment plan for arrears. If this is unaffordable for the customer, you could also look at extending the term.
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The customer can’t go back to work because of chronic illness or permanent injury. This significantly reduces their income and they can’t afford their mortgage.
You could look at changing the interest rate or increasing the term to see if that makes the payments affordable for the customer. If not, you could change the payments to interest-only, or agree to a reduced repayment plan while the customer considers their options. If there’s enough equity, you might agree to take no payments at all while the customer sells the house.
If there’s no way to get the mortgage back on track, possession proceedings might be necessary. But this should be a last resort. And customers should be given a reasonable amount of time to sell their property themselves, if they want to do so.
Case studies
‘It wasn't fair to charge me arrears fees’
Mortgages
'My lender won't agree to my repayment proposals'
Mortgages
Resources
Search our decisions database to find out about past decisions on complaints involving mortgage arrears and charges.
Find out more from the Financial Conduct Authority (FCA) on mortgage regulation.
