Mortgage lenders new scheme to curb repossession trend

Summary
The UK Government have put pressure on mortgage lenders to minimise the levels of repossessions and debt management plans due to payment defaults. This article looks at how the lenders are replying.

As they brace themselves for a rise in defaults, mortgage lenders have published plans to reduce the number of familys who have their homes repossessed. The Council of Mortgage Lenders (CML) said that while mortgage arrears and repossessions were expected to remain depressed, the UK’s poor economic outlook may cause more homeowners finding themselves in difficulties.

The CML’s initiative aims to ensure that familys who might not be able to keep up their mortgage repayments will only lose their home after all other options have failed. Mortgage lenders are already required by the Financial Services Authority (FSA) to have policies for arrears administration which aim to avert repossessions, except where there is no alternative. But there is no standard policy, and repossession policies differ between suppliers.

In a brief to Alistair Darling the Chancellor, the The Council of Mortgage Lender’s said its members had signed up to four measures to help keep repossessions minimal.

Lenders have agreed to analyse their current arrears and debt administration plans and refine them to bring them in parallel with new industry guidelines that have been relased by the CML’s. Borrowers who fall behind with repayments will also be provided with information explaining their lenders’ arrears administration plan, so that they can be clear on what to anticipate and how they will be treated.

Lenders will also adopt what is called the “pre-action protocol” which lays out the distinct points the lender must  proceed through before pursuing an arrears case to court inorder to ensure court action is a last resort.

Finally, building societies and banks also have to be enterprising in assisting people to plan for possible high mortgage repayments when their present deal terminates. The Council wants lenders to talk with borrowers towards the end of their discounted deal or fixed rate early and persuade them to get in touch with the lender if they suspect they may have difficulty meeting the higher repayments.

The Director General at the The Council of Mortgage Lenders said: ‘We continue to anticipate that the level of mortgage debt and possessions will remain low, as originally forecasted. We continue to work closely with Government Ministers we look forward to a clear statement of the Government’s own position on a safety net for borrowers. With the economy worsening and an incomplete safety net for mortgage borrowers, the The Council of Mortgage Lenders cannot be complacent about the outlook and the challenges facing lenders, borrowers and public policy makers alike.’