The Treasury Committee released a report this week entitled, Mortgage arrears and access to mortgage finance, which focused on households affected by the recession, struggling with mortgage arrears and/or at risk of repossession.

The Report reveals that both mortgage arrears and repossession levels are on an upward trend as a result of the recession, with both expected to continue rising over the next few years. The Committee acknowledges that many mainstream lenders are taking pro-active steps to support consumers in mortgage difficulties, but expressed concern at the lack of flexibility and forbearance shown by some lenders in the sub-prime, specialist and second charge sectors towards homeowners in arrears.

John McFall, Chairman of the Committee said: “Losing the family home is one of the most distressing experiences a family can go through. We have heard harrowing tales of households struggling to keep their heads above water in an attempt to avoid repossession. The next few years are likely to see the number of families in mortgage difficulties rise steeply. This is why it is so important to ensure that lenders are complying with the rules to only use repossession as a last resort and that the FSA is enforcing those rules properly.

The Committee was extremely concerned by evidence that many sub-prime, specialist and second charge lenders are using repossession not as a tool of last resort, but instead of first resort. This is clearly unacceptable – the FSA and the OFT must get a grip on this problem and crack down on lenders who are breaking the rules and mistreating customers in arrears.” 

The Committee shared the concern expressed by many of those who gave evidence to its inquiry that some lenders are charging high and excessive mortgage arrears fees to customers who fall into mortgage difficulties. The Report voices concern that in many instances such charges appear to go beyond the recovery of additional administrative costs and are being used instead as an alternative profit stream.

The Report describes such practices as ‘intolerable’ and calls upon the FSA to take a much more robust stance towards tackling and eliminating unfair arrears charges. It recommends that lenders should be required to provide an itemised breakdown of the additional costs their arrears charges are supposed to cover.

John McFall, Chairman of the Committee said: “We have heard evidence of charges as high as 35 pounds from some lenders for simply sending a letter or making a phone call, and charges as high as 150 pounds for a visit from a so-called ‘debt counsellor.’ Such practices are intolerable and are placing additional financial as well as emotional strain on those already struggling to keep a roof over their head.

We suspect that the small number of cases being brought against lenders making excessive arrears charges are merely the tip of the iceberg. This is why it is so important that lenders are compelled to open up their books and justify their charges, while the FSA must be prepared to take decisive action where it finds evidence of wrongdoing.”

The report welcomed the measures the Government introduced to support homeowners in mortgage difficulties. However, the need for the introduction of a large number of new initiatives as well as the amendment of schemes in place before the current crisis suggests that adequate safety nets for homeowners in mortgage arrears and/or at risk of repossession were not in place prior to the current recession. The Report recommends that the Government re-examine its longer-term strategy towards supporting homeowners in mortgage difficulties to ensure that adequate mechanisms to support homeowners are in place even once the current downturn has ended.

The Report also notes that Mortgage Rescue Scheme has directly benefited just six households, despite being designed to assist upwards of 6,000. John McFall, said: “The Mortgage Rescue Scheme was designed to assist upwards of 6000 households, but thus far only six households have directly benefited from the scheme. I am looking for answers as to why this is the case and whether low take up reflects poor scheme design or an inability to forecast take-up.”

R Lacey

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