Mortgage shortfall
Do you handle complaints about mortgage shortfalls for a lender? This page will give you an overview of the complaints we can help with and how we approach them.
We have separate guidance on:
On this page
Do you have a mortgage complaint?
Complaints we deal with
Consumers come to us, unhappy with how their lender has managed their mortgage shortfall, because:
- they don’t know why they still owe money, as their house has been sold
- they believe their house was sold for too little – so the shortfall is the mortgage company’s fault
- the mortgage lender didn’t contact them about the shortfall until after the repossession
- they agreed a plan to repay their mortgage shortfall, but now their lender says they’re not paying enough.
Rules on mortgage shortfalls
When we look at complaints about mortgage shortfalls, we use the regulatory and legal standards that applied at the time of the event that the consumer is complaining about.
The Mortgages and Home Finance: Conduct of Business (MCOB) sourcebook sets out how mortgage lenders should provide services to borrowers. For guidance on mortgage shortfalls, see:
- MCOB 13.5 covers dealing with a customer in arrears or with a sale shortfall on a regulated mortgage contract
- MCOB 13.6 is about repossessions
In 2023, around 90% of mortgage lenders signed up to the Mortgage Charter. If the complaint you’re handling involves one of these lenders, then they are subject to the standards set out in the Charter.
When dealing with a complaint about a mortgage shortfall, remember your customers could be in a vulnerable situation. We would therefore expect to see that you've paid attention to the Financial Conduct Authority’s (FCA’s) Guidance on the fair treatment of vulnerable customers.
Handling mortgage shortfall complaints before they come to us
Good complaint handling can repair a relationship, build confidence in financial services, and help customers understand your financial products. We'd expect your complaint handling teams to fully understand:
- all the relevant rules and regulations, including the requirements of the Consumer Duty
- what to send us when we're dealing with a complaint about your firm
Our decisions database holds all the final decisions we’ve published since 1 April 2013. They're anonymised to protect the identity of complainants but are based on real-life complaints, so will give you a good picture of how we resolve disputes.
Our complaints data will give you an idea of the volume of complaints we receive and resolve, and the proportion that we have upheld in consumers’ favour.
How we resolve mortgage shortfall complaints
We only look at complaints you've had an opportunity to look into first. If the consumer is unhappy with your decision, or you don't respond to them within the time limits, they can come to us.
We follow the FCA’s dispute resolution rules (DISP) and will take into account how you’ve tried to put things right. We’ll also consider whether the sale was by a 'tied' representative of a product provider, or an independent financial adviser.
Each case is different, so what we require will vary. But, depending on the nature of your customer’s complaint, we’d expect you to have covered the following in your response:
- how the property was valued and marketed, and whether you got a fair price
- how you've made contact with the customer about the shortfall, and how often
- how you’ve taken into account the customer’s preferred way to communicate
- any evidence that the customer avoided being contacted about the shortfall
We’ll look at the facts and evidence from both you and your customer, and consider:
- relevant laws and regulations
- regulators’ rules in place when the event happened, including the Consumer Duty
- guidance, standards and codes of practice in place at the time of the event
We may ask additional questions or for specific information, for example, to explore whether your firm complied with the Consumer Duty.
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The MCOB rules require residential mortgage lenders to contact their customer within six years of the sale date (five years in Scotland) to say whether they intend to recover a shortfall.
This is good practice for unregulated mortgages but, if you're pursuing payment after this time period, we'll consider your reasons.
We’ll also want to see that you’ve:
- tried to work with your customer to put in place a fair payment plan – taking into account their individual circumstances
- put your customer in touch with an independent organisation, like a debt charity, to discuss a realistic repayment plan
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We understand that a mortgage lender may:
- continue to charge interest on a mortgage until the property is sold, and
- incur costs when selling repossessed property
We’ll usually say it’s fair for a lender to pursue these costs – if they’re not covered by the money from the sale of the house – as well as any unpaid mortgage balance. But we'd expect you to work with your customer to put in place a fair payment plan, and get support from a debt charity if needed.
If your customer is complaining that you sold their property was sold for too little, we’ll look into whether:
- it was on the market for long enough to attract a fair offer, without staying on the market indefinitely.
- how circumstances such as market conditions might have affected the sale price
- you got more than one valuation for the house, including at least one independent valuation
- the property was marketed fairly by at least one local estate agent - and not as a 'repossessed' property, for example – as this is likely to lead to it being sold for a lower price
- the property was sold at auction or in the standard way, given that auction prices are generally lower, and if it was whether that course had been recommended by an independent surveyor because the property was in poor condition and wasn't selling on the open market
- it was fair to accept an offer you may have received that was below the valuation price, but consulting what the estate agent said about the offer
If we conclude you didn’t get a fair price for the property, we might tell you to write off some of the shortfall. You may also need to pay some compensation for any distress of inconvenience you have caused your customer.
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If your customer tells us they feel you've harassed them about their shortfall, we’ll at look how many times and in what way you've been in contact.
We may tell you to work more constructively with your customer to agree a reasonable payment plan, if we find you’ve acted unfairly in the way you’ve chased payment.
However, we may agree that it’s fair to change the monthly repayments if your customer’s circumstances have changed. Paying higher monthly repayments might help them get out of debt sooner.
If we uphold a consumer's complaint, we'll tell you what you need to do to put things right. We may also ask you to compensate them for any distress or inconvenience they’ve experienced as a result of the problem.
Case studies
'It's not fair that the amount I owe has gone up'
Mortgages
'I've been contacted about a shortfall - but I shouldn't have to pay it'
Mortgages
'My lender's harassing me about paying the shortfall'
Mortgages
'My lender sold my house for a lot less than it was worth'
Mortgages
Business Support Hub
Businesses and consumer advisers can contact our Business Support Hub on 020 7964 1400 for information on how we might look at a particular complaint, or for guidance on our rules and how we work.
We also work with businesses and other organisations to help prevent complaints.
