Keep a roof over your head in the recession

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by: MarkeD
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Date: Mon, 22 Mar 2010 Time: 11:57 PM
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Homeowners who fall into mortgage arrears could benefit from new rules aimed at giving them more protection against penalty charges.

As part of its move to treat borrowers fairly, City watchdog, the Financial Services Authority (FSA), is proposing a crackdown on the excessive fees lenders levy on those who fall behind on mortgage payments - and has stressed that repossession must only be considered as a last resort.

According to the latest figures, at the end of September, there were around 194,600 mortgages in arrears by 2.5 per cent or more. (*)

Review of the mortgage market

The package of measures is part of the regulator's ongoing Mortgage Market Review, and follows research which showed some lenders were charging unacceptably high fees and moving too quickly to repossess properties.
"These proposals will help to ensure that homeowners in financial difficulties are treated fairly," said the FSA's Lesley Titcomb. "Lenders need to be in no doubt of their obligations to customers who fall behind with payments - and must realise that such circumstances are not an opportunity to create further profits."

Package of measures

A new consultation paper published at the end of January proposes that no early repayment charges should be added to arrears charges and interest, and that no monthly arrears charges should be levied where the lender and homeowner have agreed to a new repayment deal.

Firms will also be required to consider all options for borrowers, with repossession as the last resort, while payments must first be allocated to clearing the missed monthly payments - rather than to arrears charges - which can be repaid later.

Lenders must also record all arrears handling calls, and keep records for three years.

Mixed reaction

The new proposals were welcomed by Citizens Advice, which reports that a third of lenders are still failing to comply with existing rules, making court action against borrowers a last resort.

"The strengthening of these existing rules will help protect vulnerable homeowners from avoidable homelessness," says Citizens Advice spokeswoman Sue Edwards. "We hope to see the changes implemented as soon as possible."
The Council of Mortgage Lenders, however, was more reserved in its response, and said that while it "broadly agrees" with the proposals, it will need to review the practical implications to ensure there are no "unintended consequences."

Will charges be refunded?

The FSA clampdown has prompted speculation as to whether thousands of homeowners may be in line to collect refunds for unfair mortgage charges - but not all are convinced.

"It is unlikely that borrowers will be able to claim back excessive charges paid in the past," says Melanie Bien from broker Savills Private Finance. "But the new proposals will give an extra level of protection to consumers in the future."

If you do feel that you've been treated unfairly by your lender in relation to charges, your first port of call should be your lender; if you're still not satisfied with the outcome, you can then take your case to independent arbitrator, the Financial Ombudsman Service.

Keep on top of mortgage payments

While the new package of measures from the FSA should mean better protection for homeowners who fall behind on payments, this does not mean you are safe from repossession.

It is still crucial to make your payments on time - and to take action before you miss a payment.

If you are struggling to meet your monthly commitment, you must speak to your lender immediately; you can also get free help and advice by contacting Citizens Advice

Consider the alternatives

The good news is, you may be able to find another way of managing your mortgage payments during difficult times.
"It may be possible to switch from repayment to interest-only," said Bien. "This will cut your monthly payments, but you must remember to go back to repayment once you can afford to do so - to ensure your mortgage is cleared by the end of the term."

If this is not an option, another alternative is to extend the mortgage term.

"This will reduce the monthly payments," said Bien. "However, you will make more of them in the longer run, as you pay the mortgage back over a greater period of time."

Whichever route you choose, the key is not to bury your head in the sand, but to take action at the earliest opportunity.

(*) Council of Mortgage Lenders.

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Read more about mortgages at http://www.confused.com